Religion, Altruism and Social CapitalNathan SmithSubmission for SSSR Conference in Tampa, Florida, November 2-4, 2007

People participate in religion, among other reasons, to meet people, make friends, and form communities. We all know this, yet this fact remains largely opaque to economic theory. If we try to regard community as a “good” which is bought and sold, then who are the buyers, who are the sellers, what is the price, and what is the “technology” by which the good is produced? Yet community clearly is a good that people value, and their desire for it affects their economic behavior, and one of the things they do for its sake is religion. They hire preachers and choir directors, build churches, burn gas driving to church on Sunday mornings, submit, more or less, to some restrictions on behavior, so that they can, in the process, make a lot of friends, with whom they organize church socials and holiday celebrations and Bible studies and parties, and whom they turn to for aid in times of need, for job references and advice, for help moving house, and sometimes to buy and sell things, arrange business partnerships, rent property, and give things away. To the extent that religion’s benefits are supernatural or realized only in the afterlife, economists have some excuse if their explanatory efforts remain somewhat incomplete (though the study of the market for “supernatural” goods has been surprisingly productive). But seeking social connections is the type of this-worldly motivation that should be accessible to economic analysis. Nonetheless, economic studies of how community and social connections serve to motivate religious participation remain few.

It sometimes occurs that a scientific discipline finds some observed fact about the world inexplicable not because it hasn’t made the key observation and conducted the right experiment, but because some fundamental flaw in the paradigm1 of that science makes it unable to think about the problem in the right way. In this paper, I will argue that the fact just mentioned—that people go to church for the community, among other things—is just this kind of fact with respect to the paradigm of standard microeconomic theory, as characterized by such assumptions as perfect information, complete contracts, exogenous preferences, and self-seeking “rational agents.” I will sketch an alternative paradigm of human interaction, rooted in the game-theoretic analysis of social capital and behavioral assumptions that allow for altruism, which can sometimes be externally induced. (The new paradigm sketched here includes the old paradigm as a special case.) In the process, I will provide a definition of “social capital” which I hope will be an advance over what has been provided in the literature so far, by clarifying precisely in what sense social capital really exists, and by showing how social capital may be regarded as a “private” good. I will then apply the paradigm to the question at hand—how does community motivate religious participation? My hope is that although the paradigm’s development remains somewhat open-ended, it will be clear to readers how it can render this puzzle transparent.

A word on methodology is warranted. This is a theoretical rather than an empirical paper. The real world comes in through stylized facts and secondary sources, and the

1 In the sense of the word pioneered by Thomas Kuhn in The Structure of Scientific Revolutions, 1968.

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paper seeks to advance knowledge by (a) examining the data of common knowledge in new ways to gain new insights, and (b) elaborating logical possibilities and chains of inference with greater clarity than is usually done. Readers should also bear in mind that the assumptions and stylized facts are drawn chiefly from the author’s experience of mainstream Christianity in the United States. I hope that the analytical framework developed here will also be useful in the study of other religious traditions and other regions, but cannot vouch for the extent of its applicability.

Part I reviews the relevant recent literature in economics, showing the problem to be solved and the empirical underpinnings of the new paradigm. Part II shows how a working definition of social capital can be distilled from the conditions for positive outcomes to be obtained in a stylized “reciprocity game.” Part III applies the new paradigm, based on altruism and social capital, to the demand side of religious participation. Part IV explores the supply side, and how social capital affects religious competition.

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I. Recent Research on Religion, Social Capital and Altruism in Economics

The thesis of this paper relates to three different streams in the economics literature in the last two decades: (a) the growing research effort in the economics of religion in view of the ongoing falsification of the secularization hypothesis, (b) the concept of social capital that has generated explosive interest in other social sciences and made scattered inroads into economics, and (c) the laboratory experiments which have provided new evidence against the rational agent hypothesis and forced economists to reconsider fundamental behavioral assumptions, including the possibility of altruism.

A. Religion: too important to ignore

Nietzsche’s famous quote that “God is dead” expressed a perennial belief in the social sciences (and philosophy) that religion has become intellectually untenable and is bound to fade away. One wonders if that belief has itself become untenable and is bound to fade away. In the words of the bumper sticker, “‘God is dead.’ –Nietzsche. ‘Nietzsche is dead.’ –God.”

A study of US religious statistics by Rodney Stark yielded the startling conclusion that the “pattern [observed] can truly be called the churching of America. On the eve of the Revolution only about 17 percent of Americans were churched. By the start of the Civil War this proportion had risen dramatically to 37 percent… [After 1870] the rate began to rise once more, and by 1906 slightly more than half of the US population was churched. Adherence rates reached 56 percent by 1926… By 1980, church adherence was about 62 percent.” (Stark, 22) In 2002, a book by Robert Fogel used the phrase “the Fourth Great Awakening” to characterize the religious state of America.

Religion may have lost sway in western Europe since the 1960s, which has given rise to the idea of “the American exception” to a general process of secularization. But is America the exception, or is it western Europe? In historically Muslim societies, secularism has been largely squeezed out by a resurgent Islam in recent decades. In the former Soviet bloc, Catholicism, Orthodoxy and Islam have, to varying degrees, recovered from decades of Soviet repression. There has been a spectacular spread of evangelical Protestantism in Latin America, and a rapid expansion of Christianity seems to be underway in China.

Many social scientists would prefer to ignore religion, but this will not do, because religion is too evidently real, and too evidently matters. As sociologist Christian Smith expresses it:

Religion is simply too fascinating a thing to let sit, to not continue to probe fundamental questions about it. We pretty well know what people are up to, and why, when they labor to produce goods

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and services for consumption. We know why people engage in political life to make collective decisions. We know why they build armies, form families, write laws, and educate youth.

But why do people, very many people, engage in religion? Why do they take seriously realities that are unseen? What induces people to give away time and money and perhaps much more for intangible things “spiritual”? What are people doing when they pray, and why are they doing it? What is it that gets people out of bed every Sunday morning for their entire lives? Or to abstain from food and sex during daylight hours for an entire month every year? Nobody is finally making people do religion. It does not produce any obvious material benefit. In much of the world, religion is entirely voluntary. In other parts of the world it is actively suppressed. And yet billions of humans profess and practice religion anyway. What an interesting phenomenon.

Not only that, but religion—this thing apparently based finally on nothing empirical—actually seems very often significantly to influence people’s lives in various ways… Studies of religion are recurrently discovering that religion often affects people’s health, beliefs, attitudes, practices, affiliations, and behaviors. Religion actually appears to cause things to happen.

What is going on here? What is this thing “religion”? Why does it engage people so? What role does it play in human existence? How do we explain its influence in life? (Christian Smith, 95-96)

One reason is community. Emile Durkheim, one of the founding fathers of sociology, regarded community as the essence of religion. The “sacred,” thought Durkheim, was that which was related to or symbolized the community, and he thought this principle could be observed in every society. Casual observation suggests that many casual churchgoers attend mainly “for the community,” while devout churchgoers who place high value on supernatural rewards nonetheless regard these as inseparable from the collective aspect of religion, expressed in phrases like the communion of the faithful. Economics, with its individualistic approach to human behavior, has difficulty making sense of this.

Many of the standard concepts of economics—consumer, entrepreneur, market, competition, production, human capital—can be applied to religion (Iannaccone, 1995). Priests, pastors, imams, churches, synagogues, and so forth are “entrepreneurs of the supernatural,” who “sell” (offer) supernatural goods/services to the public. Adherents are “consumers,” who pay for the supernatural benefits of religion with money (e.g., in the collection plate) and time. Religious entrepreneurs “compete” in their efforts to retain members and proselytize. When religious competition is regulated, the industry (so to speak) tends to become moribund and its “market penetration” suffers. This prediction is borne out empirically and marks an important success of the rational choice approach to religion. The rational choice approach gives rise to an interesting explanation of the congregational organization of religion as a response to “credence” problems:

The dilemma confronting religious consumers is analogous to that which confronts used-car buyers. Product quality is difficult to assess, even after purchase and use, and this tempts sellers to overstate the value of their merchandise or disguise its flaws. Not wishing to be cheated, buyers demand guarantees, seek information from third parties, or investigate the seller’s reputation. Sellers are thus motivated to provide, or at least to appear to provide, proofs that their claims are true. Because the logic of this argument applies quite generally, we can predict the emergence of religious institutions and arrangements designed to reduce fraud and increase information.

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Examples are not hard to find. Testimonials are commonplace in religion, and, predictably, are more common in those variants that place greater emphasis on material blessings. Testimonies are more likely to be believed when they come from a trusted source, such as a personal acquaintance or a respected figure… This helps to explain why the character of religious activity is so often collective and the structure of religious organizations is so often congregational. Fellow members are more trustworthy than strangers. They also have less incentive to overstate the benefits of the religion than do members of the clergy, whose livelihood depends on a steady stream of “sales.” (Iannaccone, 2005, p. 115-6)

This is interesting, but surely there is more to the communitarian nature of religion than the need for credible product endorsements. This account treats the congregational structure of religion is a means, the production and marketing of “supernatural” goods, as the end. But what about the reverse? Can an economic approach treat religion as the means, and community—which we can translate into the economic concept of social capital—as the end? Empirically, religious participation seems to be an effective way to build social connections, according to Robert Putnam:

Regular worshipers and people who say that religion is very important to them are much more likely than other people to visit friends, to entertain at home, to attend club meetings, and to belong to sports groups; professional and academic societies; school service groups; youth groups; service clubs; hobby or garden clubs; literary, art, discussion, and study groups; school fraternities and sororities; farm organizations; political clubs; nationality groups; and other miscellaneous groups…

Religiosity rivals education as a powerful correlate of most forms of civic engagement. In fact, religiously involved people seem simply to know more people. One intriguing survey that asked people to enumerate all individuals with whom they had had a face-to-face conversation in the course of the day found that religious attendance was the most powerful predictor of the number of one’s daily personal encounters. These studies cannot show conclusively that churchgoing itself “produces” social connectivity—probably the causal arrow between the two points in both directions—but it is clear that religious people are unusually active social capitalists. (Putnam 66-67)

The social capital literature provides a framework for thinking analytically about community and connections.

B. Social capital

“It’s not what you know, it’s who you know” – so goes the old saying. In the simplest microeconomic models, however, there is perfect information, all markets clear all the time, there are no transactions costs, and contracts are usually not mentioned at all but implicitly they are costless, complete and fully enforceable. In such a world there is no room for “who you know” to matter. (Indeed, with perfect information, everyone knows everyone, by assumption!)

But as we relax the assumptions, recognizing that people’s information sets are limited, myopic, and fallible, that there is sometimes substantial dispersion of prices, that many potentially beneficial exchanges go unrealized, that transactions costs are sometimes high, and that contracts can never provide for all contingencies and are costly to create

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and enforce, a role opens up for social networks to play in spreading information and facilitating exchange.

“Social capital” is an expression which invokes the familiar concept of “capital” to convey the insight that people’s social ties have value. The concept of “social capital” seems to have been coined by L. J. Hanifan, a Progressive Era reformer, in 1916, and was further developed by sociologists Pierre Bourdieu and James Coleman before being popularized in the 1990s by Robert Putnam in the national bestseller Bowling Alone. Many scholars recognized Putnam was onto something important, and explored further. But the impetus Putnam gave to social capital research has caused the literature to get ahead of the development of a cogent concept. Social capital has been, as it were, knocking on the door of economics for some time, but economists are hesitant about letting it in. Two recent analytical reviews of the social capital literature by economists, “Social Capital,” by Steven Durlauf and Marcel Fafchamps (2004), which became a chapter in the Handbook of Economic Growth, and “Social Capital and Economic Performance: Analytics,” by Partha Dasgupta (2002), are both critical of the literature for lacking a clear definition of what social capital is.

In my view, the most promising trend in the social capital literature involves clarifying the meaning and effects of social capital through the theory of repeated games. Thus, Routledge and von Amsberg (2002) model social capital in the context of repeated prisoner’s-dilemma games. Social capital is defined as the situation where cooperation is an equilibrium in this game, which depends on the probability that two agents will meet in a given period. This determinant of social capital resembles one of the components of social capital as defined in this paper. (I will refer to it using the coefficient s.)

Annen (2003) also uses the repeated-prisoner’s-dilemma game framework and defines social capital as “a player’s reputation for being cooperative within a social network,” i.e., a player’s social capital consists of other people’s beliefs about him. This will appear in the model of social capital below as the coefficient p.

Durlauf and Fafchamps report that some of the literature has recognized the link between social capital and altruism:

One… claim often made in the literature is the idea that social capital favors altruism and raises concerns for the common good – the ‘touchy-feely’ side of social capital… Even a minor increase in altruism can raise social efficiency, [as shown] in a standard Prisoner’s Dilemma game… Altruism provides an efficient solution to free-riding – a principle that most religions seem to have discovered centuries ago. (Durlauf and Fafchamps, 20-21)

The last sentence of the quoted passage anticipates the thesis of this essay.

It would seem that the link between social capital and altruism runs both ways. Social capital may promote altruism if social interaction causes people to care about each other, but it may also facilitate reciprocity and cause more interaction, thus helping social capital to form, and even may be regarded as constitutive of social capital, as I will argue—assuming, of course, that there is such a thing as altruism in the first place.

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C. Does altruism exist?

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.” (Adam Smith, 23-24) With these words Adam Smith inaugurated the tradition of homo economicus, the abstractly self-interested “rational agents” who have populated economists’ models for two centuries.

Homo economicus has provoked reactions in non-economists ranging from bemusement to outrage. The most famous is Karl Marx and Friedrich Engels’ fiery rebuke to what they saw as the essence of capitalism:

The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left no other nexus between people than naked self-interest, than callous "cash payment". It has drowned out the most heavenly ecstacies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. (The Communist Manifesto, 1848)

Alasdair MacIntyre suggests, in a biography of philosopher-saint Edith Stein, that the reaction against homo economicus was part of the ideological dimension of World War I:

[In August 1914,] there was no doubt in Stein’s mind or in [her colleagues’] with the possible exception of Max Lehmann, that Germany had engaged in a war that was at once just and unavoidable. Like so many others, they believe that the values at stake in the conflict were those of Kultur, values threatened by French cynicism, British commercial self-seeking, and Russian barbarism. (MacIntyre, 69) (my emphasis)

The reaction against homo economicus was also an element of Nazism. Hitler was contemptuous of “the bourgeoisie,” and Gottfried Feder, a Nazi ideologist, considered “the common interest before self-interest” one of the two slogans of the Nazi party.2 Sayyid Qutb, who visited America in the late 1940s and later became a leading light of the Islamist movement of which al-Qaeda leaders Osama bin Laden and Ayman al-Zawahiri are representatives, what he perceived as Americans’ selfishness: they were “a reckless, deluded herd that knows only lust and money.”3 Disdain for homo economicus seems to be the one thing that all the enemies of liberalism have in common.

A more civilized critic was British sage John Ruskin, whose 1862 book Unto This Last was a formative influence on Mahatma Gandhi:

Among the delusions which at different periods have possessed themselves of the minds of large masses of the human race, perhaps the most curious -- certainly the least creditable – is the modern soi-disant science of political economy, based on the idea that an advantageous code of social action may be determined irrespectively of the influence of social affection…

2 Gottfried Feder, “The Official Program of the Nazi Party,” 1926.3 Wright, Lawrence. “What Turned Sayyid Qutb Against America?” http://hnn.us/articles/31478.html

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I neither impugn nor doubt the conclusion of the science if its terms are accepted. I am simply uninterested in them, as I should be in those of a science of gymnastics which assumed that men had no skeletons. It might be shown, on that supposition, that it would be advantageous to roll the students up into pellets, flatten them into cakes, or stretch them into cables; and that when these results were effected, the re-insertion of the skeleton would be attended with various inconveniences to their constitution. The reasoning might be admirable, the conclusions true, and the science deficient only in applicability. Modern political economy stands on a precisely similar basis. (John Ruskin, Unto This Last4)

Was it all a misunderstanding? Adam Smith thought that economic life in general, and market exchange in particular, is best understood as a function of individuals’ self-interest, but he was no disbeliever in “the influence of social affection.” In The Theory of Moral Sentiments,5 (1759) he wrote:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.

Since then, academic specialization has prevented most economists from venturing into moral philosophy at similar length. But Vernon Smith probably speaks for most of the profession when he writes that the efficiency of markets in creating wealth “says nothing about the necessity of human selfishness… Markets economize on the need for virtue, but do not eliminate it.” (V. Smith, “Constructivist… Rationality”, 466)

Yet the habit of modeling “rational agents” has inculcated in economists a prejudice against altruism, which manifests itself in a disturbing readiness to accept, and produce, very invalid arguments against altruism’s existence, both at the theoretical and at the empirical level.

A trivial example is the tautological claim that whatever people do, they must have a reason for doing, therefore it is in their self-interest. Related to this, but more substantive, is the idea that people get positive feelings, a “warm glow,” from helping others, and in this sense their actions are not “really” altruistic. This proposition might even generate testable predictions: we might expect, for example, that “social distance” could reduce altruism, since affection for people is stimulated by seeing and talking to them. To deny that behavior thus motivated is altruistic, however, goes against common sense. And it does nothing to vindicate the traditional homo economicus, who is typically assumed to require, or at least to anticipate, some material, rather than merely psychic, benefit from helping others.

4 http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/ruskin/ruskin5 http://www.econlib.org/Library/Smith/smMS.html

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One may accept that altruism is possible yet doubt that much of it actually occurs in practice. Bryan Caplan expresses a typical view in a recent paper on rational choice: “Empirically, people rarely help strangers who are unlikely to return the favor. There is a lot of mutually beneficial cooperation in the world, but little altruism. By international standards, Americans are unusually charitable, but they keep almost 98% of their income for themselves.” (Caplan, 95) Except they don’t. Americans may give little of their money to formal charities, but they spend a lot of it on their families and some on their friends. Caplan would call that mutually beneficial cooperation rather than altruism, but there is a flaw in this distinction. As David Kennett has noted, “we [cannot] be sure that the fact that some material benefit may ultimately flow to the donor is the motivation behind the action.” (Kennett, 186) Perhaps my generous Christmas present to you this year inspires you to give me a generous Christmas present next year. It does not follow that I anticipated your present, or that it was the motivation for mine. And just because benefits flow both ways does not mean the relationship is “mutually beneficial” in selfish terms. A father may sell his son a car for $1,000 when he knows it is worth $5,000. If people rarely help strangers, that may be because they rarely interact with strangers and know little about their needs. And donating to formal charities may be inefficient, from the altruist’s point of view, for impersonal, organized charity can create perverse incentives. “Charity begins at home” may be an efficient way for society to delegate: each person looks out for those whose needs he knows best. In short, the facts that Caplan cites may be perfectly consistent with high levels of genuine altruism.

Experimental economics has thrown an interesting new light on “other-regarding behavior.” The rational agent hypothesis gives quite definite predictions about how people should behave in certain laboratory experiments. In the “ultimatum game,” for example, two agents are told to “divide” a sum of money—say, $100—by the following procedure: Player 1 chooses an arbitrary amount, then Player 2 can either accept, or decline, in which case both players get zero. Rational agents should converge on the sub-game perfect Nash equilibrium solution to this game, which is that Player 1 should take all but the minimum currency unit—e.g., $1—and Player 2 should accept. But experiments show that the modal outcome is that Player 1 splits the money evenly—e.g., offers $50—and in the rare cases when Player 1 offers only $10 (10%), Player 2 usually rejects the offer (V. Smith, “Social Distance…”, 653 and “Constructivist… Rationality,” 490). One interpretation of this result is that people care about fairness, and are willing to sacrifice their own well-being to punish perceived cheaters.

Still more anomalous is the “dictator game,” with the same rules except that Player 2 is no longer allowed to reject the offer. A “rational agent” would take everything, but real people who are “provisionally allocated” $10 and asked to “divide” it with an anonymous other player give away, on average, about one-fourth of the money (V. Smith, “Constructivist… Rationality”, 490). Vernon Smith et al. have published the results of an experiment in which successive versions of the “dictator game” are tried, increasing “social distance” by making the dictators’ actions increasingly secret both from their counterparts in the game and from the experimenters themselves. Even in a pure double-blind procedure, 38% of the dictators give away positive amounts of money, and 8% give away 40% or more.

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Strangely, Smith et al. conclude: “We interpret the data as generally supportive of the economic assumption of self-interested behavior” (though with “caveats”). (Smith et al., 658) How can it be self-interested for so many people to give away money to perfect strangers in total secrecy? Well, for one thing, “subjects may be suspicious of our procedures to guarantee anonymity.” Also, people may “import into the laboratory” “unconscious, pre-programmed rules of social exchange that suit them well in the repeated game of life’s interaction with other people” (p. 659). There are (at least) two problems with this argument. First, self-interestedness seems to have retreated into the “unconscious,” but the notion unconscious self-interestedness is, to put it mildly, opaque. Would it not be better to simply characterize such behavioral patterns as simple altruism for many or most predictive purposes? Second, to characterize the generous “dictators” as even “unconsciously” selfish depends on the claim that quasi-altruistic behavior “suits [people] well,” in self-interested terms, in the world at large, but what is the evidence for this claim?

More fundamentally, even if no dictator gave away any of his endowment, this would not be evidence against altruism, for players can have little reason to believe that their anonymous counterparts would benefit more from the money than they themselves, or than the neediest person of the player’s acquaintance. So is the experiment useless? Not at all. It is a poor test for altruism, since an altruism hypothesis yields no clear predictions for how individuals should act in the game. But it is a very good test of the “rational agent” hypothesis. In Popperian fashion,6 the rational agent hypothesis makes definite predictions, which, if confirmed by the results, would not prove it true, but if contradicted would (do) prove it false. (Another economist, Matthew Rabin, in a paper entitled “Incorporating Fairness into Game Theory and Economics” (1993), recognizes and try to deal with the failure of the rational agent hypothesis in laboratory experiments.)

Another challenge to homo economicus comes from biology. Although the Darwinian world of “survival of the fittest” may seem inimical to altruism, it turns out that what evolutionary theory predicts is “selfish genes,” not selfish people. Natural selection will tend to favor organisms that are capable of spectacular self-sacrifice to save their kin (who carry similar genes), and may also favor a capacity for “reciprocal” or “discriminating” altruism, the latter becoming ex hypothesi a function of genetic programming, not of reason. The “selfish gene” idea is an intuitively compelling hypothesis which does not perform well empirically. The stylized fact that birthrates fall as countries get wealthier is the opposite of what it would predict. But to the extent that we are survival machines for our genes, with a genetic propensity for kin-selection and reciprocal altruism, human beings will find themselves wanting to help others, without knowing why.

6 Karl Popper, one of the leading philosophers of science in the 20th century, argued that the critical characteristic of a good scientific theory is “falsifiability,” that is, it should generate unlimited predictions, and should stand disproven if any of the predictions proves to be false.

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There is an exception to economists’ skepticism about altruism: government. Economists routinely derive policy recommendations from their models as if they were advisors to benevolent despots, who face no political constraints and seek only the common good. Why do economists assume narrow self-interest on the part of private citizens and boundless altruism on the part of governments? In a democratic context, the assumption may have a tenuous justification. In the voting booth, people know their vote won’t change the election outcome, so they might as well get a cheap “warm glow” from voting for what they believe is the common good. However, the impotence of one vote also implies that people have little incentive to find out what the common good really is or how it is best served. And voters are the absentee landlords of politics. Day-to-day, politicians, bureaucrats, and lobbyists operate government, and there is little reason to regard any of these as more altruistic than private businessmen. But if economists give too much credence to the altruism of governments, they are unduly skeptical about the altruism of ordinary private persons. The assumption that people in general are narrowly selfish goes against the evidence of laboratory experiments, of evolutionary biology, and of common sense. The conclusion to be drawn here is not that people are “really” altruistic. Altruism is a recent neologism—Kennett reports that it was coined by Auguste Comte in the 1850s (Kennett, 184)—which emerged and spread partly in reaction to the fields of economics and evolutionary biology which (then) postulated generalized selfishness. The other-regarding aspect of human nature is probably better expressed in older virtue-words with popular currency like love, justice, loyalty, and honesty, as well as vice-words like hate, envy, and anger. Rather, altruism is a simple assumption about human behavior, readily translated into mathematics, which can serve as an input into the intricate models of human interaction that economists specialize in building, while fitting the facts better than the assumption of narrow selfishness.

The usual practice in the literature is to model altruism by introducing a coefficient into agents’ objective functions which indicate how much they care about other agents. I will follow this practice (or extend it slightly) by using double-indexed “altruism coefficients” labeled (for example) αij, to indicate the degree of agent i’s altruism towards agent j. If αij

= 0, agent i is indifferent to agent j’s welfare; if αij = 1, i values j’s well-being as much as his own; and αij such that 0 < αij < 1 means that i values j’s welfare, but less than his own, while αij < 0 indicates hate or malice, and αij > 1 means that i loves j more than himself.

D. Altruism versus revealed preference

Altruism causes problems for utility theory. To postulate that people get “utility” as a mathematical function of their consumption can strike non-economists as whimsical or even absurd. But the concept of utility in modern economics is far more subtle and rigorous than glib numerical examples suggest. The theory of utility begins with the concept of “preferences,” defined as: A “prefers” consumption bundle x to consumption bundle y if, given the choice between x and y, A would pick x. Certain assumptions are then introduced, of which the most basic are (a) “transitiveness” of preferences, whereby

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if x is preferred to y and y to z, then x is preferred to z; (b) “completeness” of preferences, whereby A has preferences over all possible bundles x and y—either x is “strictly preferred” to y, y is “strictly preferred” to x, or A is “indifferent” between x and y; and (c) “non-satiability” of preferences, where A always wants more of all goods.7 While not necessarily realistic in all cases, the assumptions seem accurate for most purposes. Agents act so as to optimize outcomes with respect to their preferences.

Using these assumptions, we can define an infinite series of “indifference curves,” each consisting of all the consumption bundles between which an agent is indifferent, and ranked in ascending order, with any point on a “higher” indifference curve representing a consumption bundle that is strictly preferred to any consumption bundle on a “lower” indifference curve. At this point, it is convenient to assign numbers to the indifference curves and call the numbers the “utility” derived from each consumption bundle. Utility can then be represented as a mathematical function of the quantities of goods consumed. The numeric values taken by the “utility function” are arbitrary, but the rank-ordering of preferences over consumption bundles which the utility function represents is a psychic reality, which will be exhibited behaviorally under the right circumstances. And how do we know what this rank-ordering is? Simple: we observe people’s choices, and deduce that the consumption bundles they choose are preferred to those they decline. This technique of modeling utility is called “revealed preference.”

But what if a father sells his son a $5,000 car for $1,000 because of altruism? Using revealed preference, we will deduce, falsely, that the father valued the $1,000 more than he valued the car. The father’s actions fail to reveal his (selfish) preferences (what we may call his “primary” preferences, before he takes the interests of others into account) because he is not seeking merely to optimize his own utility, but also to benefit his son.

The need to protect the foundations of utility theory motivates the otherwise mysterious tautological objections to altruism. Rejecting them comes with a cost: wherever altruism may be in play, we cannot rely on people’s behavior to reveal their preferences. And the more we allow for the possibility of altruism, the more we narrow the range of situations in which people’s behavior is a reliable guide to the structure of their utility functions. This is a problem for the empirical study of altruism as much as for revealed-preference utility theory. When behavior may plausibly be either self-interested or altruistic, or some mixture of the two, we will have difficulty interpreting it, since people’s motives are not observable.

Social capital, whether it involves an element of altruism or not, also creates problems for revealed preference, because when agents act with implicit expectations of reciprocation from other agents at some indefinite time in the future, they may sacrifice their short-run preferences, and thus, again, these preferences cannot be deduced from their actions.

7 For purposes of everyday application, the most questionable is probably the assumption of completeness.

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II. Social Capital and Altruism: A New Paradigm of Human Interaction

In this section, using ideas distilled from the literature outline above, I develop a paradigm of human interaction, based on a game-theoretic model of transactions as “reciprocity games” which can sometimes but not always be “solved” through money or formal contracts, and a modified utility theory that allows for the altruism agents may feel towards each other. In this context, the standard microeconomic paradigm fits in as a special case, namely the case where transactions can be/are facilitated by means of money, and the mutual “altruism coefficients” among all relevant players are zero. When those conditions hold, the reciprocity game is reduced to a monetary transaction, and the standard approach comes into its own. But there are circumstances in which the money solution does not work or is not efficient. In this case, agents find themselves in a “reciprocity game.” Whether they achieve a positive outcome in the reciprocity game depends on their mutual attitudes and expectations, specifically: (a) the expected probability of repeated interactions, (b) each agent’s expected probability that the other will cooperate, and (c) the degree of altruism felt by each player towards the other.

In the context of this paradigm of human interaction, it becomes possible (I will argue) to provide the clear definition of social capital that has eluded the literature thus far. Social capital is a set (a “matrix”) of interpersonal attitudes and expectations in a group of people. As such, it functions as one determinant of the amount of reciprocity that takes place within the group (not the only one, since the quantity and quality of opportunities for beneficial cooperation varies; a factory’s production is influenced not only by the quality of capital, but by other inputs, and by demand for the product). I will argue that social capital really is capital (not just a “metaphor”), although it is different from physical (not necessarily from human) capital in two respects: (a) it cannot be legally owned, and (b) it cannot be traded on the market, which makes the general difficulty of evaluating capital especially acute.

A. The reciprocity game

I will present the Reciprocity Game as the general form of a transaction, then explain its motivation. In this game, agents A and B have alternating opportunities to benefit the other. At the beginning of the Reciprocity Game, Agent A has $10 and Agent B has $0. On the first move A has two choices:

Agent A’s First MoveMove ResultCooperate A: Sacrifices $5

B: Gains $10GAME CONTINUES WITH PROBABILITY s, ELSE:Final payoffsA: $5

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B: $10Exit GAME ENDS

Final payoffsA: $10B: $0

If A plays “Cooperate,” and if the game happens to continue, B faces the same choices:

Agent B’s First MoveMove ResultCooperate B: Sacrifices $5

A: Gains $10GAME CONTINUES WITH PROBABILITY s, ELSE:Final payoffsA: $15B: $5

Exit GAME ENDSFinal payoffsA: $5B: $10

If B plays “Cooperate” and the game happens to continue, A faces the same choices as on the first move, except that all terms in the payoff matrix has increased by $5:

Agent A’s Second MoveMove ResultCooperate A: Sacrifices $5

B: Gains $10GAME CONTINUES WITH PROBABILITY s, ELSE:Final payoffsA: $10B: $15

Exit GAME ENDSFinal payoffsA: $15B: $5

The game continues to alternate until either (a) A or B plays “Exit,” or (b) the game “breaks” randomly at the end of one of the turns. The Reciprocity Game is represented in tree form in Figure II-1.

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Figure II-1

Implicit in the game are the notions that (a) agents’ interactions typically have a repeated rather than a one-off character—pure one-off interactions can be regarded as the special case in which s = 0, but presumably agents rarely know that they will not meet again—and (b) reciprocity is fragile, such that trust once lost is hard to recover. The game assumes that while there are mutual gains from ongoing reciprocity, one agent is likely to be “subsidizing” the other at any given time. Moreover, while Cooperating may or may not serve the individual interest of the player whose move it is, it always benefits the joint utility of A and B, since the sacrificing player always loses less than the benefiting player gains. It is always socially desirable to play Cooperate.

Our task is to find out under what conditions individuals’ motivations will give rise to the socially desirable outcome. First, however, we must address an obvious question: Why don’t the players arrange for the optimal outcome through side-payments?

1. Money and reciprocity

If we allow side-payments, it is easy for A and B to achieve the socially optimal outcome in the Reciprocity Game. B can simply offer A any amount between $5 and $10 in return for playing Cooperate on the first move. A can make the same offer in return, and so on indefinitely. In this case, the reciprocity game collapses into an ordinary trading relationship, with successive purchases of a good or service.

A

A

A

B

B

Exit

Exit

Exit

Exit

Exit

Break (random, probability 1-s)Coo-perate

Coo-perate

Coo-perate

Coo-perate

Coo-perate

A: 10; B: 0

A: 5; B: 10

A: 15; B: 5

A: 10; B: 15

A: 20; B: 10

A: 5; B: 10

A: 15; B: 5

A: 10; B: 15

A: 20; B: 10

The Reciprocity Game in Tree Form

Break (random, probability 1-s)

Break (random, probability 1-s)

Break (random, probability 1-s)

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Since this is what happens in the market, it is obviously very common. The capitalist economy can be characterized as a vast web of market reciprocity, with agents self-interestedly helping one another, using cash to arrange for the proper incentives. Yet it is well known that many ways in which people help each other are rarely if ever paid for. Why not? The most obvious reason is social taboo: between friends, not only is it not customary to pay one another for favors, but the very suggestion can cause offense. While the social taboos seem irrational, they may represent a social response to a genuine problem. That is, it may, for some reason, be a bad idea for certain forms of cooperation to be facilitated by money, and a social taboo develops as a substitute for people having to explain why to one another, and/or to find out the hard way. But why would facilitating cooperation with money sometimes be a bad idea?

We can reverse the question and ask: Under what conditions can money effectively facilitate transactions? There seem to be at least six conditions that must hold for market exchange to work:

1. Some currency or liquidity exists; 2. Benefited agent B has or can borrow a sufficient quantity of currency to

compensate potential benefactor A;3. A has reason to accept currency as compensation;4. B has, or can be provided with, adequate information about the value of the

benefit A can provide, before the transaction is finalized;5. Transaction costs (included the psychic cost of estimating the value of the benefit)

are less than the value created by the transaction; and6. The negotiation problem can be solved at a cost less than the value created by the

transaction.

We can illuminate the significance of these six conditions by stating their contraries and giving examples. If any one of the six conditions fails to hold, monetary reciprocity will not work. Thus, money exchange can be ruled out if:

1. No currency exists. This might have been the case for primitive man, although money seems to have been a very early and widespread invention of mankind. In modern times, the absence of currency occurs in certain exceptional cases, such as in prisons, or perhaps during hyperinflations when the official currency ceases to serve as a store of value. The “no currency exists” case may also apply, in effect, when the minimum currency unit is too large to be useful. This is hardly ever the case in today’s age of fiat money, but when rare gold and silver were the currency and most of the population consisted of very poor peasants, it may often have been the case.

2. Benefited agent lacks or cannot borrow sufficient currency. When A can benefit B, and there is no prospect of B returning the favor, reciprocity is not at issue: A will help B, if at all, from altruism, not reciprocity. But in some cases B will likely be able to return the favor, but lacks the currency to compensate A in advance or simultaneously with A’s benefiting him. For small transactions, B may own the cash but not have it on his person (thus, friends often lend each other money for lunch). For larger transactions, B may not possess the necessary

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amount of money at all. If B can go formally into debt to A, this may be regarded as a case of “the money solution” to the reciprocity game, but such contracts may be too costly or inconvenient to draft and sign, or too difficult to enforce.

3. No amount of liquidity is sufficient to compensate A for the service. Though economists usually assume “non-satiety,” there may be rare cases when some agent really doesn’t want any more money. That is not what is under consideration here. Rather, condition (3) concerns situations in which A’s utility function is such that the utility gains from more money alone will never raise it above some asymptotic limit, while some kind of reciprocity from benefited agent B can raise A above that limit. To illustrate the possibility that some benefit may give A utility greater than the asymptotic limit of what A can derive from money, consider the case of a man in love who would prefer her to all the wealth in the world; of an old tycoon estranged from his only son who would give everything for reconciliation; of a religious enthusiast whom no worldly pleasure could tempt from the path of salvation. Sometimes, no doubt, it is only rhetoric, but there is no theoretical basis for ruling out such cases. In The Rise of Christianity, Rodney Stark reports that early Christians would often risk death to care for one another, or even for non-Christians, during epidemics. If A has a chance to save B’s life by nursing him through an illness, at a substantial risk of catching it and dying of it himself, it may not be in his interests to do it for any amount of money, yet if B will in turn do it for him, or for his family (a service that A could not purchase for money, for the same reason that he is not willing to do it for money), he may find that to be a mutually beneficial exchange. Marriage and other big life-events may also have this character.

4. B is unaware of A’s opportunity to benefit him, or is insufficiently aware of its value to be willing to compensate A adequately. For B to be willing to compensate A for a service, he must know what the service is worth. But A may be better informed about the value of the service than B is. One very common and important case is when the service consists of information itself. Almost by definition, B will not know the full value of information that A might give him before he hears it (though in some cases he may be able to make an educated guess). But once B hears the information, it is too late for A to demand payment, since he cannot take the information back, and indeed B couldn’t forget the information simply by wanting to even if he tried. In that case, A’s best bet may be to just give B the valuable information for free, and hope that B decides to reciprocate in some way. Market exchange in information is highly problematic and a source of many “market failures.” Facilitating flows of information is probably one of the most important functions of social capital (and why it is more relevant than ever in the “Information Age”).

5. Transactions costs are too high. This may apply both to very small and to quite large cases of reciprocity, for different reasons. When the cost/benefit of a service is small, even the effort of transferring a few coins or bills might partially or fully offset the value-added from the act. When the cost/benefit is larger, transactions costs may be too high because the type of contract that would be needed is complex. This might be the case when social capital performs an insurance function, for example.

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6. The expected costs of negotiation more than offset the value created by the transaction. A full explanation of this scenario would involve a larger digression into the theory of bargaining than I want to include here. The central point is that many bargaining games have no stable solution, depending as they do on the efforts of each player to guess the “reservation price” of the other player, who has an incentive to conceal it. Depending on the strategies chosen by the players and the “cost” (e.g., in time, or mental effort, or the negative side-effects of concealment of information) of making offers and counter-offers, it is possible for two rational players to lose more in negotiation costs than the entire value-added of the transaction. If players foresee that negotiations might turn out this way, they may prefer to forego the potential benefits of the exchange altogether.

No doubt this list of conditions for the “money solution,” and of corresponding scenarios in which it fails, could be extended. The occasions for non-monetary reciprocity range from very large and important cases to very small and trivial ones, and may even be clustered at the extremes: the big things in life that “money can’t buy,” and those that are too trivial to worry about payment. But information and transactions costs problems can affect many middle-value reciprocity games.

While any of the six conditions (and perhaps others) can make the money solution infeasible by themselves, they can also operate in combination. Thus, both transactions costs and negotiations costs (and maybe another game having to do with signaling altruism) explain why friends do favors for each other without payment. Also, even if the money solution is available, it may be less efficient than a “social capital” solution.

2. Success conditions for the Reciprocity Game without money

Suppose now that for whatever reason, the money solution is not available. Can A and B achieve a positive outcome nonetheless? To begin with, what is A’s best rational move—Cooperate, or Exit?

To calculate this, we need to assume some probably p1, p2, p3, … which represent the probability with which A believes that B will play Cooperate on his first move, second move, third move, etc., should he have occasion to do so. For simplicity, we will take the p’s as exogenous and assume that they are all the same, even though a sophisticated agent would be more likely to have adaptive expectations.

The strategies among which A chooses take the form (Exit) or (Cooperate, Exit) or (Cooperate, Cooperate, Exit) or perhaps (Cooperate, Cooperate, Cooperate…) indefinitely. If A ever plans to opt for “Exit,” that is the end of the strategy, since it is a certainty that in that case there will be no opportunities for A to move thereafter. A’s strategy may be defined in terms of the number of turns in which it is profitable for A to play Cooperate.

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A should play Cooperate if any of the infinite set of strategies which involve playing Cooperate on the first move. (Cooperate, Exit) is preferable to (Exit) if and only if

(1)

because ps represents the probability that (a) the game will continue, and (b) B will reciprocate, allowing A to gain $10. (Cooperate, Cooperate, Exit) is preferable to (Exit) if and only if

(2)

where ps, ps2, and p2s3 represent the probabilities that (a) A will get the benefit from B’s reciprocation on the first move, (b) A will get to play Cooperate the second time, and (c) A will get the benefit from B’s reciprocation on the second move. (Cooperate, Cooperate, Cooperate, Exit) is preferable to (Exit) if and only if

(3)

The inequalities shown in (1), (2), and (3) are the first three in an infinite series of conditions, the truth of any of which will lead A to play Cooperate on the first move. Inequality (1) determines whether the strategy (Cooperate, Exit) is preferable to (Exit), inequality (2) determines whether the strategy (Cooperate, Cooperate, Exit) is preferable to (Exit), inequality (3), whether (Cooperate, Cooperate, Cooperate, Exit) is preferable to (Exit), and so on. Why would A ever want to play Cooperate initially, but then Exit later? This strategy might be optimal if A expects B to be more likely to Cooperate initially, then to Exit later. It seems more likely that the opposite will be observed: B will have adaptive expectations, so that initially he will be worried about A playing Exit, but once a pattern of Cooperation is established, he will be more inclined to Cooperate. For this reason, the most important of this series of inequalities is the infinite-series one which compares the payoffs of the “Exit immediately” and “Cooperate forever” strategies, that is,

(4)

where the nth term in the series on the left-hand side is equal to the product of pns2n-1(10-5s).

If we multiply the left side by , we get:

(5)

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Which simplifies to:

(6)

Based on inequality (6), we can calculate the p necessary to induce A to play Cooperate for any given s, with sample values shown in Table 1:

Table II-1:Trust and Stability Conditions for the “Social Capital Solution” to the Reciprocity Game

s (“Stability”) p (“Trust”)100% ≥ 50%90% ≥ 55.5%80% ≥ 62.5%70% ≥ 71.4%60% ≥ 83.3%50% 100%

Thus, if the game—the relationship—has a 100% chance of continuing after each turn, p must be 50% or greater for A to Cooperate, and the lower the probability of the game continuing after each turn, the higher p needs to be for A to Cooperate, so that if the game will end with 50% probability after each turn, A must be 100% certain that B will Cooperate in order to be indifferent between Cooperating and Exiting.

Thus, with the help of s and p in the right range, agents can make reciprocity work without the help of money, and without incurring the associated transaction or negotiation costs. We may call this the “social capital solution” to the game. This can be achieved without altruism, although it might look like altruism, especially if we ignore the broader context of the ongoing relationship and view the individual transactions in isolation. A and B’s “social capital” consists of mutual expectations that the other will reciprocate favors with a high enough probability to make the transaction worthwhile.

To some extent, we can identify p with the factor that the social capital literature calls “trust,” but a more precise description, which avoids loss of generality for the Reciprocity Game, would be “expectation of willingness to reciprocate.” This allows us to include cases of reciprocity where no explicit promises or commitments are made, and where a failure to reciprocate would not be regarded as a breach of trust.

3. Contractual and non-contractual reciprocity

So far, we have presented two solutions to the reciprocity game: a money solution and a “social capital” solution. The “money solution” to the Reciprocity Game can be interpreted more generally as the “contractual solution,” or, since it is the characteristic exchange relationship of capitalist economies, as the “market solution.” It is a secondary issue whether B “pays” A for playing Cooperate through a cash payment, or an in-kind

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payment, or by going formally into debt to A, or through some other arrangement that is to A’s advantage—including, perhaps an agreement to play Cooperate on his turn. In any of the above cases, the “payment” arrangements alter the payoffs of the game so that A benefits immediately from playing Cooperate. By contrast, in a non-contractual solution to the game, B agrees to nothing in return for A’s cooperation, and A benefits only if and when B decides to follow suit. Another way to describe the different forms of reciprocity is “formal” and “informal,” since the reciprocation is formalized under the money solution, but only informally expected in the “social capital” solution.

This distinction between monetary / contractual / formal / market reciprocity and non-contractual / informal / “social capital” reciprocity is not the same as the distinction made by Putnam in Bowling Alone between “specific” and “general” reciprocity:

Sometimes… reciprocity is specific: I’ll do this for you if you do that for me. Even more valuable, however, is a norm of generalized reciprocity: I’ll do this for you without expecting anything specific back from you, in the confident expectation that someone else will do something for me down the road. The Golden Rule is one formulation of generalized reciprocity. Equally instructive is the T-shirt slogan used by the Gold Beach, Oregon, Volunteer Fire Department: “Come to our breakfast, we’ll come to your fire.” “We act on a norm of specific reciprocity,” the firefighters seem to be saying, but onlookers smile because they recognize the underlying norm of generalized reciprocity—the firefighters will come even if you don’t. When Blanche DuBois depended on the kindness of strangers, she too was relying on generalized reciprocity. (Putnam, 20-1)

The idea of “generalized reciprocity” is interesting but unpersuasive. If the reciprocation of a good turn is going to come from someone else (unrelated to the beneficiary), a selfish individual has no incentive to do it. What is needed is an explicit acknowledgment that altruism is needed to make people do something for others from whom they expect no return. In that case, though, the word “reciprocity” seems to be misapplied. That said, within tight-knit communities, people may expect reciprocation from others who observe the good turn: thus A may be willing to help B because he knows that, while B is unlikely to be in a position to help him later, C, D, and E will observe his generosity on this occasion and be more kindly disposed towards him if he needs help later. Moreover, it may be in A’s self-interest to help B even if the chances of B’s reciprocation are small, if B’s possible reciprocation would have a very high value. Even if it is unlikely that my donation will make the difference between the volunteer fire department staying open or disbanding, I may regard even the small increase in the probability of their continuing operation as worth it. Some self-interested reciprocity may occur, therefore, even when the benefiting agent does not foresee a likelihood of return from the benefited person, and which might therefore resemble Putnam’s “generalized reciprocity.” But both market reciprocity and “social capital” reciprocity, as described here (and even the “altruism solution” described below) are in Putnam’s terms “specific,” not “generalized,” reciprocity.

In real life, the distinction between the “market” and “social capital” solutions is not clear-cut. Two businessmen may write a legal contract, yet rely chiefly on mutual trust to ensure that it will be honored, knowing that in the case of a breach of contract neither legal redress nor the threat thereof will be of much use, since the costs of litigation

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exceed what either party stands to gain or lose in the affair. Even if we call this contractual reciprocity, the conditions under which such reciprocation can be achieved may be the same as those that characterize non-contractual reciprocity, namely, a certain degree of relationship stability, expectation of future cooperation, and/or mutual altruism. In other cases, reciprocity may be accompanied by private promises that are not understood by the agents to be legally enforceable, and which in fact would not be enforced by a court if they were brought to trial, but which nonetheless resemble legal contracts in the specific stipulation of conditions and obligations. Such quasi-contractual reciprocity of course depends on trust, yet it seems distinct from the case where A helps B with no explicit expectation of getting anything from B in return.

Contractual reciprocity and non-contractual reciprocity may be, not so much two distinct types of reciprocity, as two distinct aspects of reciprocity, with many real-world cases of reciprocity involving both a “market” and a “social capital” element. Some cases of reciprocity may be fully described by the contractual paradigm (when I purchase a candy bar at CVS, for example) while others may be fully described by a non-contractual or “social capital” paradigm (the exchange of gratuitous favors among friends, for example), and many others fall in between, explained in part by both paradigms (business partnerships, marriages, a family’s distribution of household chores among members, friends lending each other money).

4. The altruism solution

In Part I, we explained how the “rational agent” can be adapted to allow for altruism in his utility function. We postulated a matrix of αij’s which represent how much each agent i cares about the well-being of each agent j, and these coefficients can then modify the agent’s utility function. How is the Reciprocity Game affected, if the agents are altruistic? First of all, for any given primary payoffs PA and PB, the utility A derives from these payoffs is equal to:

(7)

Table II-2 shows A’s expected payoffs in the Reciprocity Game with altruism.

Table II-2: A's Expected Payoffs in Reciprocity Game with Altruism

A’s strategy

A’s expected primary payoff

B’s expected primary payoff

A’s expected total payoff

(Exit) 10 0 10(Cooperate, Exit)(Cooperate, Cooperate, Exit)

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Cooperate Indefinitely

Based on the payoff shown in the lower right-hand corner of Table II-2, we can calculate the αAB needed to sustain a cooperative result for any given values of p and s.

(8)

Rearranging terms gives us:

(9)

Then we separate out αAB and cancel terms:

(10)

And arrive at the result:

(11)

Table II-3 applies the formula to given values of p and s to show the degree of altruism needed for cooperation.

Table II-3: Cooperation conditions for Reciprocity Game (altruism solution)

Altruism required for cooperation given values of p and s

Value of p

0% 20% 40% 60% 80% 100%

Val

ue o

f s

0% 50% 50% 50% 50% 50% 50%20% 50% 47% 44% 40% 37% 33%40% 50% 44% 37% 30% 21% 13%60% 50% 40% 30% 17% 3% -14%80% 50% 37% 21% 3% -21% -50%

100% 50% 33% 13% -14% -50% -100%

As Table II-3 shows, if either p or s is zero, then since A believes there is no chance that the game will continue after one turn, αAB must be at least 0.5—the level at which A is indifferent between himself having $5 and B having $10—in order for cooperation to occur. The negative values in the lower right-hand corner of Table 2 show that if p and s are high, it may be possible to sustain cooperation even if A has feelings of malice towards B: though reluctant to benefit B, he expects cooperation to be sufficiently

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advantageous to compensate him for this annoyance. (There are cases in which cooperation is so advantageous that even enemies will do it.)

Clearly, the presence of altruism makes it easier for A and B to sustain cooperation in the Reciprocity Game. If altruism is high enough, cooperation will occur regardless of players’ levels of “trust,” and regardless of the probability that the game will keep iterating. Even a small amount of altruism can change the outcome. For example, if the game will continue with 60% probability, it takes 83% “trust” to cooperate in the absence of altruism, but if A’s altruism towards B is 17%, only 60% “trust” is required. Altruism can substitute for both trust and game stability.

B. The Social Capital Matrix

The conditions for success in the reciprocity game give us the basis for a new definition of social capital, namely the matrix of s, p, and α coefficients between each pair of agents in an economy.

Previous definitions have defined social capital in terms of social networks and norms, sometimes linking it to some benefit, e.g. “social organization [that] facilitates achievement of goals that could not be achieved in its absence or could only be achieved at higher cost” (Coleman); “features of social organization, such as trust, norms, and networks, that can improve the efficiency of society” (Putnam); or “the existence of a certain set of informal rules or norms shared among members of a group that permits cooperation among them [such as] truth-telling, the meeting of obligations, and reciprocity” (Fukuyama). (All definitions quoted in Durlauf and Fafchamps, p. 4.)

My definition interprets the idea of “networks” as the expectations of agents in the network of having occasion for reciprocity in the future—the s coefficient in the reciprocity game. “Trust,” “norms,” “truth-telling, the meeting of obligations, and reciprocity” fall under the interpretation of the p coefficient. In addition to networks and trust, mutual altruism is included in this definition.

A difference between this definition and those previously offered is that it interprets social capital as a set of psychic features of particular agents. This helps to clarify precisely in what sense social capital really exists. Social capital is a set of attitudes and expectations, not directly observable of course, but determinative of behavior in certain situations. Agent A expects, with some probability sAB, to have further occasion for reciprocity with B. Agent A expects, with some probability pAB, that B will reciprocate if A does him a favor. Agent A will take Agent B’s well-being into account and give it a weight of αAB times his own when he is making decisions.

Admittedly, the simplifications which have been made in arriving at this definition give it a certain artificiality. We have, for example, considered a single game with a single pay-off structure, whose rules are known to the agents in advance even if there is some randomness in the way they play out. In real life, the payoffs in reciprocity games vary

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wildly, and we may know very little in advance about the payoff structure, the sequence of moves, or the probabilities involved. Still, the focus on agents’ expectations and attitudes clarifies “where” social capital is “located.” The definition could be rendered more sophisticated and perhaps realistic by introducing adaptive expectations and a wider variety of game rules, payoff structures, and determinants of players’ decisions, and maybe by making some of the coefficients interdependent: trust, for example, might be a function of the other’s altruism; or altruism a function of the other’s wealth (pity/envy). What has been avoided, however, is the idea that social capital is somehow free-floating, “in the air” as it were.

In an economy of n agents, there is a matrix of dimensions n×n which contains the pij’s for all agents i=1,2,…,n and j=1,2,…n, another n×n matrix containing all the sij’s, and a third n×n matrix containing all the αij’s. The terms in the diagonal of each of these matrices have somewhat odd meanings (αAA, for example, is an agent’s “altruism” towards himself) and may be ignored. A three-dimensional n×n×3 matrix could represent the society’s entire social capital stock. But it may be more useful to focus on the social capital endowment at the level of the individual agent.

1. Who owns social capital?

Robert Putnam is reluctant to clarify whether social capital is a public or a private good. He writes:

Social capital has both an individual and a collective aspect—a private face and a public face. First, individuals form connections that benefit their own interests. One pervasive stratagem of ambitious job seekers is “networking,” for most of us get our jobs because of whom we know, not what we know—our social capital, not our human capital… If individual clout and companionship were all that there were to social capital, we’d expect foresighted, self-interested individuals to invest the right amount of time and energy in creating or acquiring it. However, social capital also can have “externalities” that affect the wider community, so that not all the costs and benefits of social connections accrue to the person making the contact… Social capital can thus be simultaneously a “private good” and a “public good.” (Putnam, 20)

The fact that social capital may have positive externalities does not make it a public good. Lots of goods have positive externalities. The trouble is that intuitively, if social capital is really a form of capital, we should be able to say who owns it. We know who owns a factory, or a dump truck, or a patent. We know, too, who owns an Ivy League education, or the ability to program C++ or play Beethoven, even if the word “own” sounds like a funny way of putting it. The Yale grad, the computer programmer, and the pianist do. But since interpersonal relationships are by definition bilateral or multilateral, it seems impossible a priori to say whether one friend or the other “owns” the friendship. The difficulty of defining who owns social capital may be the real motivation for Putnam’s ambivalence about whether social capital is a private or a public good. Social capital resembles a public good with respect to the difficulty of defining ownership.

Yet in the coefficient matrices we describe above, each bilateral relationship appears as not one but two vectors. A’s friendship with B is represented as a one vector which we

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can call XAB= , representing A’s attitudes and expectations towards B,

and another vector XBA= , representing B’s attitudes and expectations towards A.

We can say quite definitely which vector benefits which agent. The terms in XAB benefit B—that is, B benefits if A expects ongoing opportunities for reciprocity with B, trusts B to reciprocate, and feels altruism towards B—while the terms in XBA benefit A. We cannot say that A benefits from the terms in XAB. The first two terms in XAB, sAB and pAB are determined by A rationally, using the best information available to him about the probabilities in question. Under these assumptions he cannot, on average, benefit by unilaterally deciding to trust B more. Since αAB is part of A’s utility function A cannot change that. Likewise, B cannot benefit by changing XBA. Yet while an increase in the terms of XBA may be good or bad for B, such a change is always unambiguously beneficial to A.

In an n-agent economy, there exist n-1 vectors X1A, X2A, …, X(A-1)A, X(A+1)A, …, XnA, representing the attitudes of each agent towards A. It is in A’s interest for the coefficients in all these vectors be as high as possible, for everyone to regard their relationships with him as stable, to trust him, and to feel altruism towards him.

We can thus define A’s social capital as the matrix:

(12) SCA =

With this matrix in mind, we can leave behind Putnam’s ambiguity about whether social capital is a public or a private good. It is a private good. It may of course have positive externalities, as many other private goods do, but we can define whose it is: SCA is A’s social capital.

And yet we still can’t quite say that A owns SCA. A is the sole direct beneficiary of SCA. But SCA consists of the attitudes and expectations of other people, and our democratic sensibilities recoil from the idea that one can own other people in any degree and in any sense. What if we substitute for the word “own” the phrase “have a right to”? Might a person “have a right to” certain attitudes and expectations from other people—to fidelity from a spouse, for example, or loyalty from a friend; to trust from someone to whom he has always been truthful, or to gratitude from someone he has saved from death? Certainly in other societies and in times past, such rights have been regarded as at least as real and important as property rights over gold or land, and have even been incorporated into codes of honor and violently avenged when breached.

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Whatever the rights and wrongs of the matter, in our society, agent A cannot “own” SCA in the sense of having an enforceable legal title to it. If someone vandalizes A’s factory, thus damaging A’s physical capital, A can appeal to the law for compensation. But if someone reduces A’s social capital by changing his mind about him, A can have no legal recourse. We can say that A has social capital, in the sense that a set of positive attitudes and expectations towards A exist in other agents from which A can benefit by engaging in reciprocity with those agents, but only if we can use have in a sense that does not imply legal ownership. (Human capital may resemble social capital in this respect. If this paper is so preternaturally mind-numbing that I have caused you to lose years of hard-earned knowledge, you cannot sue me for the destruction of your human capital.)

2. Social capital is capital

A critical survey of the literature by Durlauf and Fafchamps, entitled “Social Capital,” begins: “Social capital represents one of the most powerful and popular metaphors in current social science research” (p.1; my emphasis). In my view, the word “metaphor” here is a mistake.

Social connections differ from more paradigmatic cases of capital, such as factories or dump trucks, in that they are not physical, tangible objects. But physicality is no part of what makes a thing capital. Factory robots, marine cranes, the source code for an office software program, a patent for a new lawn mower, and a trusted brand name are all examples of capital. Thunderstorms, hamburgers, dinner parties, flocks of migrating birds, and the planet Mars are not. The first list is no more physical than the second. Rather, what distinguishes the capital goods is that they (a) are capable of being used, directly or indirectly, for the satisfaction of human wants, and (b) are not exhausted in the process of being thus used. Useful social connections have capital-goods-character in exactly this sense.

Some confusion in the social capital literature arises from not taking the capital in social capital seriously. Thus, Durlauf and Fafchamps argue that:

For social capital to increase Pareto efficiency, the decentralized equilibrium without social capital must not be Pareto efficient in the first place. Social capital can only have a beneficial effect in a second-best world… Social capital will never be the only possible solution to inefficiency. There always exist alternative mechanisms to solve coordination failure, improve individual incentives, and upgrade the technology of social exchange – such as contracts, vertical integration, state intervention, or redefinition of property rights. Of course, there are many circumstances in which social capital is a less expensive or simpler institutional solution, but it is important to recognize that it can never be the only one. (Durlauf and Fafchamps, 16)

The claim that “there always exist alternative mechanisms” is an application of the first fundamental theorem of welfare economics and the Coase theorem—Walrasian equilibria are Pareto-optimal, and externalities can be resolved by assigning property rights—but the authors forget that social capital is, among other things, a way to deal with a world characterized by imperfect information. One of the findings of the empirical literature is that social networks are often more effective than formal channels in helping people find

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jobs, and in helping employers find workers. Apparently, some employers find that personal referrals are better than impersonal mechanisms like classified ads, resumes, and interviews, for spreading the word about a job opening, and/or for learning about work ethic, adaptability, integrity, and other important but not readily observable employee traits. What “alternative mechanism” could substitute for social capital in this case (assuming that we cannot create Walrasian perfect information by fiat)?

The authors’ proposed “alternative mechanisms” could substitute for social capital in some cases, but even that point is eviscerated by their concession that social capital may be a “less expensive or simpler institutional solution.” Is it interesting or helpful to know that if we could design infinitely sophisticated contracts, and had a legal system invasive and infallible enough to enforce them, and if we did not care about the cost, people might not need to trust each other anymore?

Durlauf and Fafchamps could have avoided this blind alley if they recognized social capital as a form of capital, by introducing it into the (implicit) production function. For example, they could write the economy’s production function as:

(13)

where A=technology; K=capital; H=human capital; SC=social capital; and L=labor. In that case, the “decentralized equilibrium without social capital” (or, more realistically, with less social capital, since social ties are never completely absent) can be Pareto-efficient, satisfying the first welfare theorem. But social capital improves welfare by shifting the production possibilities frontier outward.

To cite another example, P. Dasgupta, in “Social Capital and Economic Performance: Analytics” (2002) asks:

Is there anything in the intuition that the process of modernization and economic development (e.g., the growth of markets) comes in tandem with a shrinkage of social capital as a “factor” of production; and the closely related question, do long-established social networks act as a deterrent to the modernization process? (Dasgupta, 6)

Again, the answer to this question is obvious if we regard social capital as capital. As countries modernize, they need fewer hoes and rickshaws, but they buy more computers and cars. Some types of capital become obsolete, but capital in general does not. Likewise, modernization means fewer feudal ties and less of an economic role for extended-family networks, but more alumni and professional associations, political parties, rock bands, hobby clubs, chatrooms, and e-mail list-serves.

Features that social capital shares with physical and human capital include: It can be used in the making or acquiring of other goods, without being used up in

the process. Some uses will accelerate its depletion (one may “live off one’s capital”). It can serve as a store of value, i.e., a means of transferring value from the present

to the future. One may invest in it.

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It will tend to depreciate over time without ongoing investment (e.g. friends will forget favors, feelings of love cool, people move away or die) and may be rendered obsolete by unforeseen changes (e.g. professional contacts less useful if you change careers).

It can appreciate (e.g. a defunct uranium mine becomes valuable when uranium prices rise; a college buddy becomes CEO of your firm).

It can be used in the production of goods for sale or consumption, or it can be a direct ingredient in enjoyment (e.g., a lake may be used as a shrimp farm or for recreation; a college education for getting a good job or enjoying a sophisticated novel; a friend for a job referral or a ride to the airport, or for a pleasant evening over a beer).

3. General problems of evaluating capital

The value of capital in general is difficult to quantify. Carl Menger, a leading economist of the “Austrian school,” helped to illuminate why, with his analysis of the “goods-character” of what he called “first-”, “second-”, “third-order”, etc. goods. First-order goods directly serve human needs. Higher-order goods are used in the production of lower-order goods, ultimately of first-order goods, and their value is contingent on the continuing goods-character of the relevant first-order goods, as well as the availability of all the complementary higher-order goods needed in production. Because demand for capital goods is thus a “derived demand,” and contingent on so many other factors, its value tends to fluctuate more and more unpredictably than the value of first-order goods.

Physical capital, unlikely human and social capital, is typically alienable and can be bought and sold in the market, which thereby supplies a measure of its value. Even in the case of physical capital, however, the book value differs from the market value which is different again from the replacement value. The notorious volatility of the stock market reflects the best efforts of market players to figure out what various capital goods (bundled in firms and split into shares) are really worth, and illustrates how problematic and contingent that value is.

Both human and social capital are harder to appraise, because they cannot be sold on the market, since they cannot be transferred from one person to another. This is especially true for human capital, which inheres in the mind or body of its “owner,” so that transfer is a physical impossibility. Transfers of social capital may be possible to some extent: A can introduce B to C; or B can be admitted to A’s club. In former times, wealthy bourgeoisie could be ennobled by the king of France, which might be characterized as a transfer of social capital. As a rule, however, the absence of a normal market makes it difficult to place a dollar value on human and social capital assets.

In labor economics, years of education is a standard “proxy” for human capital. One may regress lifetime earnings against years of education, and derive estimates of, say, the dollar value of a college degree. There are problems with this approach. For one thing, getting a college degree may be endogenous: people who are talented get college degrees,

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but because they are talented, they would have earned more anyway, so at least part of the value attributed to the college degree is really a result of unobserved characteristics. Moreover, years of education are not all the same: studying poetry probably doesn’t have the same payoff in the job market as studying engineering, and studying at a community college is not the same as studying at Stanford. Also, much human capital is acquired not in school, but on the job. And earnings reflect not only ability, natural or trained, but also effort, as well as preferences: one person may prefer a low-paid but easy and pleasant job, someone else, lots of money, even if the work is hell. In spite of all these difficulties, a respectable literature on human capital, its effects, how people invest in it and so on, has emerged. This is made possible by the availability of huge data sets, which allow for highly sophisticated econometric techniques that tease out the causality stories.

In the case of social capital, there is a lot of data about people’s connectedness, but no proxy has emerged, comparable to years of education, that can serve as a focal point for empirical literature. The definition of social capital offered here suggests, at least, what a good proxy would need to proxy for. Mere number of social contacts—quantity of “Friends” on facebook; quantity of e-mail addresses in one’s inbox; quantity of phone numbers dialed by a cell phone per month, etc.—may or may not be indicative of the real relationships that underlie mutually beneficial reciprocity. Much of that communication might be just noise, corresponding to near-zero values in the social capital matrix. Rather, we want to know how many people expect to have ongoing opportunities to interact with a person (s); how many people expect the person to reciprocate favors (p); and how many people care about or love the person (α). While those realities are undoubtedly elusive, the definition of social capital at the individual level opens up the possibility of working with very large data sets (since there are a lot more individuals than communities), so that it may be possible, as with human capital, to use sophisticated econometrics to tease out the reality and the real effects of social capital.

4. “Bonding” vs. “bridging” social capital

Social capital can be distinguished into “bonding” and “bridging” social capital, as sociologist John Field explains:

Putnam… introduced a distinction between two basic forms of social capital; bridging (or inclusive) and bonding (or exclusive). Bonding social capital tends to reinforce exclusive identities and maintain homogeneity; bridging social capital tends to bring together people across diverse social divisions. Each form is helpful in meeting different needs. Bonding social capital is good for ‘undergirding specific reciprocity and mobilizing solidarity’, while serving as ‘a kind of sociological superglue’ in maintaining strong in-group loyalty and reinforcing specific identities. Brudging connections ‘are better for linkage to external assets and information diffusion’, and provide a ‘sociological WD-40’ that can ‘generate broader identities and reciprocity’ (Putnam 2000: 22-3).

In the context of the analysis of religion and social capital, we can strengthen these definitions because the “group” has a clear meaning: the religion. Social ties between members of a religion is “bonding” social capital, while social ties between members of

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different religions is “bridging” social capital. We will examine later the extent to which religion can, or has reason to, foster each type of social capital.

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III.Social Capital Formation and the Demand for Religion

Using the paradigm developed in Section II, we can now state with greater clarity what it would mean for religion to foster social capital. To foster social capital formation is to encourage more stable relationships, greater interpersonal trust, and more altruism—that is, higher values of s, p, and α. These higher values of s, p, and α are constitutive of greater social capital, and instrumental in inducing the cooperative solution to the wide variety of reciprocity games that agents encounter in life.

But can religious bodies, in fact, promote higher s, p, and α? We will see that the combination of stylized facts about what churches are and do—they regularly assemble their members to worship, and they exhort their membership to act in accordance with moral teachings—with ordinary rational agent assumptions, can readily explain how churches would raise the values of s and p among their members, thus building social capital in these two respects. No similar explanation of how churches might promote altruism can be offered, since altruism involves a transformation of individuals’ utility functions, and economics traditionally treats the utility function as a “black box.” It is clear that religions try to promote altruism among their members. If religions succeed in promoting altruism, this would strengthen their ability to promote social capital formation, and hence it would help to explain their ongoing success.

A. Worship as a social context

The first stylized fact about religion is that members assemble regularly to worship. Worship services are typically free (donations optional) and open to all ages. Regular worship promotes higher values of s because Church Member A expects with high probability to see Church Member B next week, and the week after, and the week after that, in church. He knows, therefore, that B will have the opportunity to return his favors, so he is more likely to do favors for B.

The strengthening of social ties between A and other churches can be represented by a change in the terms of the s variable in A’s social capital matrix:

Before church = After church = No church =

where Δs1A and Δs2A represent the changes (presumably the increase) in the expectations of agents 1 and 2, who are assumed to be church members, of seeing A again in the future, as a result of his attending church, while Δ’s1A and Δ’s2A represent the changes (presumably zero or negative) in the expectations of agents 1 and 2 of seeing A again if A

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does not attend. There is no affect on non-member agent n. Similar changes will occur in the vectors representing A’s expectations of relationship stability towards agents 1 … n.

In providing a context for people to interact, of course, religion is hardly unique. Workplaces, schools, hobby clubs, neighborhoods, families, and any other ongoing collective activity can facilitate regular inter-personal contacts, raise values of s, and thus provide contexts for social capital formation. Do friends need such “contexts?” Not always: some friends just get together and talk. But friends often like to do things together, and they need things to talk about, and here common activities are helpful. Also, a regular common activity reduces the effort needed to arrange meetings: instead of driving across town, friends can simply stay after church, or class, or choir practice, and chat. Finally, if the utility derived from a friendship is variable—friends might get along well one day and quarrel the next—a context where friends see each other regularly regardless of inclination will encourage friends to make up, rather than simply have done with each other.

Religion may have some advantages over other social contexts as a place for social capital formation. First, it typically involves a lifelong commitment. Schools involve only temporary commitments, while the composition of neighborhoods, workplaces, and hobby clubs may sometimes last throughout the lifetimes of participants, but typically does not. Growing occupational and geographical mobility may have increased the instability of workplaces and neighborhoods, while the greater diversity of entertainment that has become available with rising affluence may have decreased the stability of hobby clubs. Hobbies in particular tend to be a way that people spend their spare time and money, so in the case of a decrease in disposable time or income, participation in hobbies is likely to be one of the first things people sacrifice. In particular, people may drop a hobby when they start a family.

Families, of course, do typically involve lifelong commitment, but this is another advantage for religion, since religion, unlike most other forms of association, does not typically compete with, but rather reinforces, family ties. Whole families typically do not work or study in the same places, nor participate in the same hobby clubs. But whole families usually do attend the same churches. Church attendance may promote relationship stability, trust, and altruism within families. To strengthen one’s family ties, indeed, is a common motive for participation in religion.

Second, religion brings people together with other people with whom they have something in common, and with whom they are more likely to be able to communicate effectively and enjoyably. But schools, workplaces, hobby clubs and families are also likely to be composed of people with similarities that will ease interaction. It is not clear whether a common religion is more or less important in social relationships than common profession, common academic interests or hobbies, or the myriad common memories and personality traits that characterize families. It does seem, however, that church members are likely to have more in common with each other than neighbors do, particularly as real estate markets become more liquid and residential populations more diverse.

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Third, religion is a comparatively low-cost context for social capital formation, certainly compared to workplaces and schools, and probably compared to hobby clubs. The typical churchgoer spends one or two hours in the pews each week and puts a few dollars in the collection plate. And even in an increasingly secularized society, the “weekend,” an institution of religious origin, continues to characterize the operational schedule of most enterprises, making it comparatively easy for church members to keep their Sunday mornings free. By contrast, a job typically demands 40 hours per week of an individual’s time. Full-time education demands similar amounts of time, and also considerable amounts of money. Marriage and childrearing are also highly costly in terms of both time and money. Of course, people work, go to school, and raise families for other reasons than to raise social capital. But considered merely as a context for social capital formation, religion seems to be an unusually good bargain.

The cost of hobbies in terms of time and money may be similar to religion—a few hours a week, a few tens of dollars per month—but with an important difference: religious contributions are typically made on a voluntary basis, and individuals can increase them in prosperous times and reduce them in hard times (when, indeed, churches might provide financial help). A woman who loses her job may have to give up dance lessons, but she won’t have to give up going to church.

Of course, even if the costs of religious participation are comparatively low in time and money, another kind of cost may be higher: religions make behavioral demands of their adherents.

B. Trust, reciprocation, and religion as a behavioral filter

The second stylized fact about religion is that it encourages some kinds of behavior and discourages or prohibits others. Some behavioral demands are quite specific. Mormons, for example, insist that their members refrain from drinking alcohol, coffee, or tea, from smoking tobacco, marijuana, cocaine and other drugs, from using “bad language,” and even from watching rated-R movies (though the last injunction is widely ignored). Amish are forbidden to carry guns, wear buttons, or drive cars. Catholics forbid their members to eat meat on Fridays, and impose more dietary restrictions during Lent. Judaism, Christianity, and Islam all prohibit pre-marital and extra-marital sex. Other behavioral demands are more general: members are encouraged not to lie and deceive, or to be spiteful or hateful towards others, and encouraged to be merciful, just, and honest.

Behavioral restrictions may be viewed as a cost of religious participation, since they narrow the range of choices available to individuals as they try to maximize utility. Certainly, a reluctance to be bound by religious rules is one reason that people opt not to join churches, or decide to leave them. Religious people may, however, regard the behavioral restrictions as useful, either because they think their church is better at determining the optimal mode of behavior than they themselves are, or else because the church provides added disincentives to engage in behaviors that people are rationally

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convinced are wrong or a bad idea, but which they sometimes engage in from “weakness of will.” The knowledge that one’s church will make one feel guilty about it later, or that one will have to confess and repent, may help a person to resist the urge to get drunk, or tell white lies.

Unlike the state, churches (at least in the United States and other free societies) cannot enforce their rules through coercion. Occasionally they may excommunicate members who break the rules. Old Order Amish, for example, enforce religious discipline through the threat of shunning. More typically, however, churches rely on moral suasion, providing encouragement to those who follow the rules, and inducing guilt in those who don’t. This practice reduces religious rewards for rule-breakers, and increases them for rule-followers. Those whose behavioral preferences diverge sharply from what the church condones may get no rewards from religious participation if they do what they want, while the utility cost of modifying their behavior to fit church rules is greater than the religious rewards they could gain thereby. These people will probably stop attending church. Meanwhile, those whose behavioral preferences are closer to what the church condones are more likely to get positive rewards from religious participation, and continue to attend. But since religious participation is more rewarding when one feels in harmony with the church’s rules, church members will benefit by modifying their behavior to resemble the religious rules. Church’s moral exhortations will, therefore, cause their members’ behavior to resemble the rules for two distinct reasons: (a) a selection effect, and (b) church members’ modifications of their behavior. Religious rules make it easier for members to predict each other’s behavior, including whether and how they will reciprocate a good turn.

If churches succeed in promoting trust or reciprocation expectations among their members, attending church will transform the trust factor in agent A’s social capital matrix as follows:

Before church = After church = No church =

where Δp1A and Δp2A represent the changes (presumably the increase) in trust towards A which are induced in agents 1 and 2, who are assumed to be church members, as a result of his attending church, and Δ’p1A and Δ’p2A represent the changes (possibly decreases) in trust towards A which are induced in agents 1 and 2 if A does not attend. There is no affect on trust from non-member agent n. Similar changes will occur in the vectors representing A’s trust towards agents 1 … n.

If churches have the ability to inculcate certain behaviors in their members, church membership can serve a signaling function. For example, if church member A wants to borrow money from church member B, and if the church that A and B are members of strongly encourages its members to pay back their debts, B knows that A is more likely to

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pay his debt because he is a member of the church, and church members’ behaviors are skewed towards debt-repayment. In terms of the Reciprocity Game we modeled above, pBA is higher due to A’s church membership.

And yet this model of religion is at odds with an important New Testament saying:

“And if you lend to those from whom you expect repayment, what credit is that to you? Even ‘sinners’ lend to ‘sinners,’ expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back.” (Luke 6:34-35)

In this passage, far from trying to inculcate in his listeners higher p towards one another, Jesus is doing exactly the opposite: he is discouraging people from expecting to be repaid when they lend. Of course, there is a different between saying “lend without expecting to be repaid,” and saying, “borrow without expecting to repay.” Jesus does not say the latter, nor do contemporary churches. Undoubtedly, contemporary religious leaders would typically exhort believers to honor their debts if they can.

Still, Luke 6:34-35 provides a clue that in Christian churches, at least, encouraging trust is not the most important means of promoting social capital. Jesus does not discourage people from lending; rather, he wants them to lend for different reasons (which may, of course, affect the patterns of when they choose to do it). And the easiest way to understand a practice such as lending without expecting repayment is to postulate altruism.

C. Altruism

Earlier we asked: Does altruism exist? Now we can further ask: If altruism exists, is it possible to induce it?

What is clear, anyway, is that religions try. In the Christian New Testament, in particular, no theme is more prominent or more emphatic than that of love:

“You have heard that it was said, ‘Love your neighbor and hate your enemy.’ But I tell you: Love your enemies and pray for those who persecute you…” (Matthew: 6:43-44)

“Hearing that Jesus had silenced the Sadducees, the Pharisees got together. One of them, an expert in the law, tested him with this question: ‘Teacher, which is the greatest commandment in the Law?’

“Jesus replied: ‘Love the Lord your God with all your heart and with all your soul and with all your mind. This is the first and greatest commandment. And the second is like it: ‘Love your neighbor as yourself.’ All the Law and the Prophets hang on these two commandments.” (Matthew 22:34-39)

“A new command I give you: Love one another. As I have loved you, so you must love one another. By this all men will know that you are my disciples, if you love one another.” (John 13:33-34)

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“Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It is not rude, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres… Love never fails… And now these three remain: faith, hope, and love. But the greatest of these is love.” (1 Corinthians 13:4-13)

It would seem odd that Christianity and other religions continue to devote so much attention to promoting altruism if this were impossible to achieve.

Moreover, if altruism is possible at all, it would be odd if this aspect of people’s utility functions were immune to outside influences, since other aspects of utility functions seem to be subject to them. The advertising industry spends billions of dollars every year in an effort to shape people’s preferences in favor of this or that product. Advertising employs a mixture of information, misinformation, and persuasion through associations, as when shapely women are used to increase the appeal of cars. Why shouldn’t churches use similar methods to promote altruism? If they do, however, a problem of time-inconsistent preferences appears: what church members want before their utility functions are changed is different from what they want after.

Rational choice theorists prefer to take preferences as given in order to have a place to begin. If we allow for the possibility that churches influence people’s preferences, we must first decide how to model agents’ decisions over their own future utility functions.

1. Preferences over future utility functions

Suppose a wealthy and greedy man named Potter (in our terms, all Potter’s altruism coefficients are zero) hears that a revivalist preacher is coming to town who is so persuasive that if Potter attends the revival meeting, he is certain to be converted to the gospel of love and give all his money away to the poor. (That is, all his altruism coefficients will increase to one.) Should Potter attend?

From the point of view of his ex ante utility function, he should not: the result will simply be the loss of his wealth for the benefit of people to whom (ex ante) he is indifferent. Yet if Potter does attend, he will be glad he did so, because, from the point of view of his ex post utility function, giving his money away to people who need it more than he does is the best way of using it, and his previous practice of keeping all his money for himself will seem a lamentable waste.

Since it is the ex ante Potter, not the ex post Potter, who must decide whether to attend the revival meeting or not, it would seem that Potter’s optimal strategy is not to attend. On the other hand, Potter might anticipate the ex post utility function, and reflect that although giving his money away sounds unpleasant to him now, if the revivalist preacher teaches him to enjoy it, he might enjoy this new pleasure of generosity even more than he enjoys his current greed.

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In the interests of simplicity, we will assume that at any given time t, an individual has preferences over the present and all future periods. This gives agents something definite to maximize. At the same time, agents may foresee and take into account how changes that will occur in their preferences as a result of certain current choices will affect their behavior. But they will not incorporate future utility functions into their current utility functions. (That would make things too complicated.)

By this assumption, Potter will not attend the revival meeting. He will foresee that it will make him poorer, and that is what he cares about, for now. In other cases, however, people may have reason, even from the point of view of their current preferences, to desire alterations in their utility functions, because of the way these will affect their interactions with others.

2. Altruism: cui bono?

If an individual believes that attending church will increase his altruism coefficients towards others, should he do it? A unilateral increase in altruism can benefit an individual from the ex ante point of view if it is observable to others, because the values of s and especially p which describe others’ attitudes towards him may be a function of his α’s towards them. For example, A may want to do business with B, but be unable to commit credibly to fulfilling his obligations. If A can induce in himself an altruism towards B which B can observe, B may have new reason to do business with A, because he knows that A would now harm himself subjectively by defecting. Yet this also gives agents reason to simulate altruism, creating a sort of arms-race of public flattery and secret suspicion, a phenomenon not unknown to history. All this depends on pBA being a function of αAB, which goes beyond the scope of this paper. As long as all p are taken as exogenous, A cannot benefit from his own altruism. On the other hand, A will of course benefit from others’ increased altruism towards him.

We can postulate a church service, then, in which each congregant attends hoping, ex ante, to benefit from an increase in altruism from everyone else towards himself, while regarding it (again, ex ante) as an unavoidable inconvenience that his own altruism towards others will also increase. Of course, after the service, his objective function having changed under the influence of the hymns and the sermon and the sacraments, his increased altruism towards others will be perfectly genuine, and ex post he will be glad that he attended the service, not only because others have become more altruistic towards him, but also because he now prefers his new objective function to his old one. But we must focus on the ex ante congregant, since it is he who makes the decision to come to church, or not.

Before the church service, agent A’s social capital matrix can be represented by the following matrix:

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A’s social capital =

A’s expectations and attitudes towards others =

where, as before, s1A … snA, p1A … pnA, and α1A … αnA represent the expectations and attitudes of agents 1 … n towards A, while sA1 … sAn, pA1 … pAn, and αA1 … αAn represent A’s attitudes and expectations towards agents 1 … n, and agents 1 … n may be thought of as all mankind (with many zero coefficients) or as the subset of agents with whom A will have opportunities to engage in reciprocity. After the church service, A’s social capital matrix if he attends the church service will look like this:

A’s social capital, after attending the service =

where agents 1 and 2 are taken to be church attenders, while agent n is not. The Δα1A and Δα2A represent the increase in altruism towards A experienced by agents 1 and 2 because of the church service. Meanwhile, A’s own expectations and attitudes towards others will change:

A’s attitudes/expectations after church =

The ΔαA1 and ΔαA2 represent the increase in altruism towards agents 1 and 2 that A feels as a result of the church service. But church doesn’t only affect A’s altruism towards other church members. The term Δ’αAn reflects changes that may occur in A’s altruism towards non-members. While ΔαA1 and ΔαA2 are presumably positive—churches will try to avoid promoting dissension among their members—Δ’αAn may be positive, if, for example, the preaches universal love, or may be negative, if the church promotes hatred of unbelievers. (The Δ’αAn terms are a source of externalities.)

If A chooses not to attend the service, his social capital matrix will be:

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A’s social capital, after not attending church =

Where Δ’α1A and Δ’α2A may be positive or negative, since they represent the change in the altruism of agents 1 and 2 towards A as a result of the church service when they attended it and he did not.

D. Is Church Worth It?

Assume that some agent A has little interest in the supernatural per se, but is considering going to church “for the community,” that is, for the sake of meeting trustworthy, nice people with whom he can engage in mutually beneficial reciprocity. A also hopes to benefit from the altruism which he anticipates that the church members will show towards him, but, on the other hand, he regards it as a cost that he will also become more altruistic. Under what conditions will it be worth A’s while to attend? We can state the condition rather awkwardly in matrix notation as follows:

In words, A will attend church if and only if he will benefit more from the net social capital he gains by attending church—(ΔsiA-Δ’siA), (ΔpiA- Δ’piA), (ΔαiA-Δ’αiA) for all i such that agent i is a member of the church—than the cost of attending church (c) plus whatever he loses (from the ex ante point of view) through the changes in his own altruism coefficients.

Note that the net social capital A gains by church attendance consists of the difference between the way the church members will feel about him if he goes, and the way they will feel about him if he doesn’t go. If they will like or trust him better for going, that is an incentive to go, but if they will dislike or distrust him for staying away, that is another incentive to go. The social capital gradient between members and non-members determines the incentives for attendance, and it can apparently be enhanced equally well by encouraging positive attitudes and expectations within the group—by encouraging

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“bonding” social capital—and by encouraging negative attitudes and expectations towards outsiders—by destroying “bridging” social capital.

1. The incentive for “hard-heartedness”

Religious leaders sometimes exhort their adherents not to “harden their hearts.” Thus Paul writes to the Hebrews (quoting the Psalms): “So, as the Holy Spirit says, ‘Today, if you hear his voice, do not harden your hearts.’” (Heb. 3:18)

Based on this analysis, we can see why believers might want to “harden their hearts.” By our assumptions, people don’t benefit, from the ex ante point of view, from the increase in their own altruism towards others. They benefit from interactions with and greater altruism from others, and regard their own increased altruism. Their incentive is, if they can manage it, to come to church, but then to avoid, as best they can, letting their actual feelings or values be influenced by it. St. Paul is, no doubt, neither the first nor the last religious leader to suspect that his congregation was doing just that. On the other hand, adherents do not have an incentive to learn from past failed resistance attempts and try to do better: ex post, they will be glad that their heart-hardening attempts failed.

Believers have the same incentive to resist when a religion promotes negative altruism. If a church is preaching hate towards outsiders, a believer will desire ex ante to be unmoved, but once convinced, he will regard his previous affection for, or equanimity towards, non-members, as a delusion.

IV. Why Religions Foster Social Capital—The Supply Side

Thus far, the argument has dealt with the demand side of religion. We have examined why adherents would choose to participate in religion, and in the process we have shed some light on how religions foster at least two aspects of social capital (s and p; how religions can change α remains a “black box”). But why do religions promote social capital?

Iannaccone explains the rational choice approach to understanding the motivation of actors on the supply side of religion:

Religious “producers” are also viewed as optimizers – maximizing members, net resources, government support, or some other basic determinant of institutional success. The actions of church and clergy are thus modeled as rational responses to the constraints and opportunities found in the religious marketplace… Consumers’ freedom to choose constrains the producers of religion… Religions have little choice to abandon inefficient modes of production and unpopular products in favor of more attractive and profitable alternatives. (Iannaccone, “Voodoo Economics?”, p. 77)

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Three objections can be made. First, while we know what firms maximize—profits—Iannaccone offers four maximands for religious producers, and leaves the door open to others. But we cannot model the behavior of religious organizations if we don’t know what “measure of institutional success” they are maximizing. Second, it is not clear what is meant by religions having “little choice” but to follow the market. The clergy of a church that becomes unfashionable need not change with the times if they are willing to lose adherents as the price of fidelity to the faith.

By substituting an evolutionary approach for a rational choice approach, we can get past these problems. Corresponding to the evolutionary approach is a subtle modification of the meaning of the word ‘why?’

1. The evolutionary logic of causation

To ask ‘why?’ is to ask about causation, but what kind of causation? Aristotle identified four kinds of causes of things: material—what it is made of; formal—its structure; efficient—what caused it to come into existence or change; and the most problematic and interesting, the final cause or telos—a thing’s purpose or function, that for the sake of which it exists or changes. He tended to over-apply telos, using it not only for people, animals, and their artifacts, where it is unproblematic, but for animal parts and even to heavenly bodies, where purpose could not obviously be attributed to any conscious agent (unless a Creator is postulated). During the scientific revolution of the 17th century there was a reaction against Aristotle’s final causes, and the focus shifted to efficient causes.

Yet Aristotle’s final causes received a roundabout vindication with the arrival of Darwin’s theory of evolution. It turns out that the question ‘why are a lion’s teeth sharp?’ can accurately be answered, ‘For the sake of chewing meat.’ In the evolutionist account, lions with sharp teeth are better equipped for survival than lions without them would be, so however the population of lions began, natural selection would ensure that, provided the “technology” of sharp teeth is feasible and available, sooner or later most or all lions will have them. This evolutionary mode of reasoning usually is, but does not need to be, tied to any particular account of origins. If the world was created ex nihilo 10,000 years ago, it would still have to have the properties of an evolutionary equilibrium (or near-equilibrium) to exhibit the regularities that we observe.

Thus evolutionary logic gives a new potential sense to the question ‘why’: not “What was the immediate trigger for x come into being or change?” (efficient cause) nor “For what purpose did some conscious being cause x to come into being or change?” (one sense of the final cause) but “What properties of x enable it to survive and reproduce itself, so that, given that sometime, somehow, x’s came into being, the continuing existence of x’s is an equilibrium?”

To what kinds of entities does evolutionary logic apply? Organisms are the primary focus of evolutionary analysis. They are characterized by homeostasis, being able to maintain their form, even though the set of particular atoms that comprises them changes

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over the course of their lives. Homeostasis is imperfect: mutations sometimes occur. And homeostasis sometimes fails: organisms die. The likelihood of their dying is not random but depends on their characteristics, giving rise to selection. To offset deaths, organisms must reproduce, and populations must be able to grow. It is the interaction of these factors that gives rise to the evolutionary process. So any population that has these features—homeostasis, death, mutation, growth and/or reproduction, and selection—can be a subject of evolutionary analysis.

We can apply each of these evolutionary concepts to religion: Homeostasis: the liturgies, doctrines, and hierarchies that characterize religions

serve, like the genes of an organism, to ensure that their forms remain fairly consistent over time.

Mutation: sometimes religions innovate, adjusting their doctrines and practices either in response to changed circumstances or to charismatic reformers or powerful thinkers.

Growth: religions are often able to grow by winning converts or through natural increase.

Death: both specific congregations and entire religions sometimes lose all adherents and disappear.

Selection: whether churches grow, or die, is presumably a function of the way their beliefs and practices interact with their human and intellectual environment.

The analogy is imperfect in that it is not clear whether it is better to regard religions as analogous to organisms or populations (e.g., of congregations), though religious competition may occur on both levels. Also, homeostasis depends on a certain degree of formalism and adherence to tradition. In liberal churches that adapt quickly with the times, the mutation rate may be too fast for the selection process to distinguish useful mutations from detrimental ones.

Still, evolutionary logic allows for an answer to ‘why’ religious “producers” act as they do which is independent of the various purposes that may motivate the individuals who constitute religious organizations. The evolutionary model predicts that the world’s population of religions and religious congregations will exhibit a variety of traits that enable them to retain members and/or to expand. We will not be surprised to find that most religions exhort their members to raise their young in the faith, or that most religions have found accommodation with the political powers that be, because religions that neglect the young or incur the wrath of the state would be unlikely to have survived. Religious believers may say that teaching the young and/or respecting authority is enjoined by God. They are no doubt sincere, and they may be right. Yet in the evolutionary sense, we can characterize teaching the young and respecting authority as a survival strategy for the religion. Had the religion taught the opposite, it would not have continued to exist.

Similarly, if social capital is an important reason for participation in religion and a way that religions attract and retain members, we should expect to find that competitive religions are adept in encouraging its formation.

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2. The “technology” of social capital promotion

Importantly, religions cannot simply manipulate adherents’ altruism (or loyalty, or trust) coefficients just any way they want to. For example, a church that teaches universal altruism (all αij=1) will not necessarily have the effect of inculcating universal altruism in its members. Altruism promotion can be seen as a production effort by religious organizations, and that production effort will be characterized by some “technology.”

Economists use the word “technology” to describe engineering facts about what can be done given the state of the world and the state of knowledge or skill. For example, a factory may be able to produce x widgets and y gizmos, given m workers and n machines. It can also produce, perhaps, x+1 widgets and y-2 gizmos, but not x+1 widgets and y+1 gizmos. That would require more workers and/or machines.

Or, to take another example, an advertising agency may be able, with a given budget, to produce a commercial that will make men 10% more likely to buy the product, or a commercial that will make women 20% more likely to buy the product, but it cannot, on that budget, make a commercial that will make men, women, and children 50% more likely to buy the product.

In the same way, we can postulate that there is some “technology” of altruism promotion, which defines the limit, for a given set of inputs (sermons from the preacher, hallelujahs from the choir, stained-glass windows, etc.) of how much the church can change the hearts of its congregation. The preacher can give a sermon on marriage and make the members more loving towards their spouses; a sermon on almsgiving to make them more loving towards the poor; or a sermon on fellowship in Christ to make them more loving to other members; or he might give a sermon on the wickedness of the infidel to make them less loving towards outsiders. But he doesn’t have time for all four topics.

That said, religious technology may change over time, allowing it to accomplish the previously impossible. In the “Great Awakening” of the 18th century, the Methodists began to hold “camp meetings,” large and enthusiastic outdoor meetings headed by charismatic itinerant preachers. Through the camp meetings, the Methodists were able to increase participation and attract adherents from other denominations. More recently, the megachurch movement has attracted many who might not otherwise have attended church.

The technology is a representation of the ways that religions can and cannot change the hearts of their participants. It defines the options. For example, it might be in a religion’s evolutionary interests to make its adherents feel great altruism towards each other and great malice towards non-believers, but that does not mean it is possible for the religion to do this. It may be that agents who have learned to hate non-believers will also quarrel with one another easily.

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Also, the effect that a religion actually has on its members’ altruism may not be the same as what the religion explicitly teaches. A religion may teach its members to “love thy neighbor as thyself,” (αij = 1) but actually induce them to love each other only one-half or one-fifth as much (αij = 0.5, αij = 0.2). They may teach their members to be Good Samaritans, to love strangers and even enemies, yet have the effect of inducing altruism only towards other members of the church community. A church might even teach universal love, yet promote spiritual pride that causes members to look down on others and love them less than they would have otherwise. What matters for the religion’s survival is not the words but the effects.

If promoting universal altruism is a poor survival strategy, Church A, which both teaches universal altruism and really induces it in its members, will recede in competition with Church B, which teaches universal altruism but actually induces a clubbish altruism towards members-only. Nor does this mean that the ministers of Church B are insincere. They may genuinely want to promote universal altruism, and mistakenly believe they are succeeding, or they may recognize their failure and go through much soul-searching about it. But their failures are the source of their denomination’s success.

While the evolutionary and rational-choice motivations for religions to foster social capital are distinct, and may even be at odds with each other, they can also be allies. Churches may explicitly seek to maximize membership, for example. But evolutionary analysis also suggests that the “gene selfishness” of religious doctrines and liturgies may cause religions to act in ways that spread the religion without its leaders or its members understanding why.

B. Positive and negative externalities of religious competition

At this level of generality, the conclusions we can draw about how competitive pressures in a religious marketplace affect the teachings and practices of religions are limited. However, two conclusions seem to emerge.

Religions will promote “bonding” social capital among their members. Religions create psychic and economic gains for their members when they succeed in stronger social ties, trust and altruism among them. Social capital formation gives casual visitors a reason to become members, and current members a reason to sustain or increase their level of commitment. Over time, religions which develop effective ways of promoting social capital among their members will tend to expand, while those which do not will tend to decline. We should expect, then, that religions which have endured for generations and expanded to attract millions or tens of millions of adherents will be adept at inducing social capital formation in their members. Two factors that may offset this are (a) mutation and (b) environment. If a religion achieves a sufficiently dominant position, random mutations may accumulate which reduce its effectiveness in fostering social capital formation. Due to economies of scale, the religion may be able to hold its own, but its competitiveness will decline. Also, changes in the social and cultural environment

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may cause methods of fostering social capital that were successful in the past to become obsolete. Both of these reasons may explain why new and fast-growing religions—what the literature refers to as “sects”—tend to be especially effective in fostering social capital, i.e., the Mormons are better at it than the Catholics.

Religions have less incentive to foster “bridging” social capital, and may even try to sabotage or destroy it. There are both advantages and disadvantages to a religion in fostering social ties, trust, and altruism in its adherents towards non-adherents. On the one hand, to the extent that external social capital helps members to achieve worldly advancement in business and politics, the church is not only helping provide its members with an asset, but may also increase the value of its members’ “bonding” social capital to one another. Also, bridging social capital is an important means for religions to expand. Rodney Stark gives evidence in The Rise of Christianity that most successful proselytization begins with personal contacts. On the other hand, the more a church’s members have ties outside the religious community, the less dependent they are on the social capital that the church gives them access to. Also, ties outside the community may be the channel through which they are recruited to other churches. If it is in a religion’s evolutionary interests to discourage bridging social capital, this may express itself in doctrines discouraging relations with unbelievers, but it is also possibly that the religion will preach Good Samaritanism while subtly and unconsciously discouraging it through practices that are at odds with core doctrines but which help the religion succeed.

Is the destruction of bridging social capital characteristic of religion in the United States? In Bowling Alone, Putnam argues that the conservative churches which have especially flourished during the “Fourth Great Awakening” have focused on creating bonding rather than bridging social capital:

Historically, mainline Protestant church people provided a disproportionate share of leadership to the wider civic community, whereas both evangelical and Catholic churches put more emphasis on church-centered activities. Reviewing the sweep of American history, Robert Wuthnow, one of the country’s most acute and sympathetic observers of religion, concludes that “whereas mainline churches participated in progressive social betterment programs during the first half off the twentieth century, evangelical churches focused more on individual piety.”

Both individually and congregationally, evangelicals are more likely to be involved in activities within their own religious community but are less likely to be involved in the broader community. Evangelicals attend church more regularly than mainline Protestants, are far more generous philanthropically (giving an average of 2.8 percent of family income vs. 1.6 percent), attend Sunday school and Bible study groups ore regularly, and have more close friends in the same congregation. According to George Marsden , ‘The fundamentalist churches offer far stronger community to their members than do their moderate-liberal Protestant counterparts… [They] are some of the most cohesive non-ethnic communities in America.’

The social capital of evangelicals, however, is invested at home more than in the wider community. Among evangelicals, church attendance is not correlated with membership in community organizations. (Putnam, 2000, p. 77-8)

While this may be a cause for concern, it does not necessarily indicate that evangelicals in fact have negative attitudes towards non-members of their church communities. Religious participation may cause a loss of effective bridging social capital simply by

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raising the opportunity cost for the religious of interacting with non-members. I have not explicitly modeled the idea that people have limited time and needs for social engagement, but if we assume that a person can’t play all the reciprocity games available to him, he will rationally opt for those that promise to benefit him most. If church attendance leads to strong bonds of love and trust within the church, he may opt out of relationships that he would have invested in otherwise, if the church had not been there.

Even if a religious revival does have negative externalities for non-participants in the form of reduced bridging social capital, the increase in bonding social capital may more than offset this cost. Economists know that an activity may be socially beneficial even if it has negative externalities. It may be worth opening a factory, for example, even if this results in some pollution, if the value-added from the factory’s productive activities is worth more than the disutility associated with the pollution. A religious revival may also have other kinds of positive externalities—more giving to charity, as Putnam notes, or less propensity for crime, more hard work, and reliance on community- rather than state-supported social safety nets.

Whether or not the “Fourth Great Awakening” is an example of it, religious competition certainly can create negative externalities. Religions might compete with each other (compete in effect, that is, not necessarily by intention) through good works, public service and fellowship, or they might promote disdain and hatred for other faiths and encourage their members to shun and despise the infidel. Either approach might be a good survival strategy, depending on the “technology” of social capital promotion, the nature of a religion’s competitors, and the political and socio-economic circumstances in which the competition takes place (or even the intellectual Zeitgeist of a particular time and place). Historically, there are examples of both strategies, and it is hard to say which is predominant. Still, today, the negative externalities of religious competition seem to be a poisonous ingredient in certain high-profile conflict zones such as Iraq, Israel-Palestine, Lebanon, Bosnia, and Nigeria.

V. Conclusion

The way in which religion fosters social capital provides a partial explanation to the questions posed by Christian Smith, as quoted in the introduction. We know how most sectors of the economy contribute to the whole. Thus, the transportation sector moves people and goods to where they are needed; the power sector supplies homes and businesses with the electricity to run lighting, heating, and appliances; and the education sector inculcates useful skills in the young and keeps kids out of the house during the day so adults can work. But what does the religion sector do? One answer is that it provides a context for people to meet, and influences people’s attitudes and relationships, helping them to form the social connections and communities. Far from being a new insight, this is if anything a truism, yet from the point of view of the standard microeconomic paradigm, with its self-seeking rational agents, perfect information, complete contracts, and exogenous preferences, it is difficult to make sense of the notion. By looking at the

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success conditions in reciprocity games to develop a definition of “social capital,” while allowing for altruism, we can develop a different paradigm for human interaction which has room for social connections and community. We can then see in the stylized facts about how religions operate some evidence that they do foster social capital, perhaps more effectively than any other institution, and we can see why this gives people an incentive to participate in them. Moreover, an evolutionary analysis of religious competition gives us reason to believe that the world’s inventory of religions will represent the best available “technology” for encouraging the formation of “bonding” social capital.

The most troubling result to emerge from the analysis is that it may be a good survival strategy for religions systematically to destroy “bridging” social capital, or even to promote contempt or hatred for unbelievers. This is not always the optimal strategy: creating steep social capital gradients (e.g., shunning) can deter members from leaving, but social ties to non-members can lead to new conversions, and help members to gain success in other walks of life. The broader political, cultural, and economic environment may also affect the “technology” of religious competition: thus, if intolerance and racism are morally anathematized in the broader culture, religions may be under competitive pressure to follow suit to avoid alienating members. On the other hand, separatism is not necessarily a bad thing. A religious group that creates high-quality “bonding” social capital may give its members benefits far out-weighing any harms suffered by outsiders due to the believers’ withdrawal from other social ties.

None of this relates explicitly to the supernatural, which raises the question: If churches are in the business of promoting social capital for their members, what is the reason for a single industry to bundle social capital promotion with supernatural services? The answer may lie in the “technology” of altering people’s utility functions, and in particular of promoting altruism. It may be that the most effective way of causing people to be more altruistic towards each other involves an appeal to the supernatural. If so, that could explain why neither secular clubs nor religions that downplay the supernatural seem to be able to compete very effectively for participants against stricter, conservative churches that emphasize the supernatural without reservation. The analysis also says nothing about the truth of religion, raising the troubling possibility that a religion which is wholly false, but very effective in promoting social capital, might out-compete truer religions less that are less adept in community-building. But of course, social capital is only one way that religions compete. People may convert away from a religion that has a great community because they are unable to believe its theology, and this could act as a brake on the growth of a religion which was unable to offer its members a worldview compatible with evidence and reason.

Given the ongoing importance both of religion and of social capital, the link between religion, altruism, and social capital merits continued empirical attention. I hope the arguments in this essay will help to give impetus to this research.

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