Many political scientists and economists have argued that expanded civil liberties and general political freedom are conducive to economic growth (e.g., Smith  1976; North, Wallis, and Weingast 2009). One subset of these civil liberties--religious freedom--is frequently neglected in such discussions, with scholars tending to focus on the rights of private property ownership, contracting, assembly, and access to political decisionmaking. Religious liberty is often seen as an isolated freedom that directly impacts parishioners and clerics but has little spillover effects on the general economy or society. But can the right to worship freely also have positive consequences for economic growth? A casual glance suggests nations that have developed strong legal guarantees of religious freedom (and a concomitant culture of religious toleration) are also ones that have had long-term sustained economic growth (Grim and Finke 2011).
Within the modern world, the Netherlands, Britain, and the United States were the first adopters of toleration and liberties for religious minorities, and these countries also became the loci of rapid growth in entrepreneurial activity in the 17th century and beyond, not to mention some of the first societies to set the modern standards for constitutional democracies.
Might there be a causal connection between religious freedom, on the one hand, and societal prosperity, on the other? If so, what are the precise mechanisms linking the two? We take a historical approach to this puzzle and a set of related questions. Namely, if religious freedom has remained historically elusive, how did it ever originate? Can the experience of the past inform us about the process to achieve expanded civil liberties in the area of religious belief and practice today? Answers to these questions will enable us to fill out our understanding of civil and economic liberties and the complex relationship between general freedom and economic prosperity.
Our examination of these issues takes us back to the 17th and 18th century, with the first emergence of religious freedom in the modern era in the Netherlands, Britain, and British American colonies, eventually culminating in the First Amendment of the United States Constitution--not a be-all-and-end-all of religious freedom but certainly an important historical marker. We assert that history is a salutary teacher and that current struggles for enhanced democratic freedoms can learn from the processes of the past. Furthermore, we argue that the emergence of religious toleration coincided with, and is causally related to, the growth in prosperity that was witnessed in these nations during the same period. While not asserting that a respect for religious freedom is the only reason for increased economic prosperity, we do consider it an important catalyst that should be taken seriously in contemporary policy debates. Understanding that the promotion of a core set of civil liberties--namely, the rights of religious conscience and practice--are linked to material prosperity helps us understand the more holistic nature of social flourishing, both economic and political. We make our case by laying out the generally understood causes for economic growth and illustrate it with four historical lessons.
Conditions for Economic Growth: Institutional and Ideational
Economic historians have long noted that the conditions giving rise to the Industrial Revolution of the 1800s began in Northwest Europe several centuries earlier (North and Thomas 1976, Weber  2001). This region began witnessing a steady increase in economic productivity and living standards in the late medieval period that set it apart from other civilizations around the globe (Kuran 2011). Given the seemingly endogenous relationship between economic growth and political liberalization (North, Wallis, and Weingast 2009), it behooves us to examine some of the basic factors promoting the relationship between prosperity and democratization. Writing on the cusp of the Industrial Revolution, Adam Smith was well-placed to observe what was giving rise to an increasingly obvious change in European economy and society. Though his Inquiry into the Nature and Causes of the Wealth of Nations is long, his basic idea is very simple: wealth arises from the reciprocal relationship between the division of labor [i.e., specialization) and expanded trade (Smith  1976: 25-27). Specialization allows one to become more efficient at producing goods and services, while trade allows people to specialize in one thing while still having their needs and desires met by the production of others. Anything that inhibits the ability to trade decreases the benefits of specialization and, thus, retards long-term economic growth. Trade being critical here, the next logical question is: What lowers barriers to trade, both domestic and international? (1)
The factors contributing to increased trade and concomitant economic production have been numerous, with most explanations centering on secular concerns. Popular among a new breed of political economists have been political institutions that establish a predictable set of property rights that allow producers to capture the fruits of their production (North 1990, Olson 1993, Weingast 1995). (2) To the extent that the rapacious hands of political rulers are limited by checks upon concentrated power and constitutional guarantees of civil liberties, individual entrepreneurs wall have an incentive to invest in long-term projects that increase efficiency and promote expanded specialization and trade. The secular ruler benefits from such an arrangement by being able to tax an expanding economic pie. Finding a balance that allows rulers to maximize their tax revenue without damaging the incentive of private entrepreneurs to expand production is at the crux of economic growth for these theories. To the extent that government leaders understand that any barriers to trade negatively affect their ability to increase tax revenue over the long term, private actors will be able to leverage greater freedom of operation for themselves. Such freedoms may be specifically related to physical manufacturing and commerce but may also extend to other important matters such as the ability to worship freely, as we will argue below.
More recently, economists have revived the notion that culture and ideas serve to reduce impediments to free exchange and efficient production (McCloskey 2006, Mokyr 2009). The insights here are that the intellectual conditions of the Enlightenment provided for a greater free How of ideas, which in turn prompted innovation and reduced the stigma attached to various entrepreneurial behaviors. It was no coincidence that rapid industrial growth followed on the heels of philosophical ideals of greater toleration, limited government, and the virtues of thrift. Stark (2005) and Aquilina and Papandrea (2015) take this argument deeper historically by noting that it was Christianity, and not just a Calvinistic ethic per se (a la Weber), that promoted egalitarian ideals and civil rights that eventually blossomed into historically unparalleled prosperity.
It is into this debate that we insert our contention that the desire of individuals to practice their faith freely, and the willingness of governments to allow such liberty, enhanced long-term economic development. Religious liberty is not the only factor responsible for economic growth, but it is an important ingredient that makes the economic pie larger--and all the more sweet. The idea that individuals holding different beliefs should be tolerated in society, and the incentive of these individuals to promote institutions that allow them to organize and worship freely, contribute greatly to an environment that promotes a wide variety of civil liberties that concurrently facilitate a number of secular relationships, which in turn promote greater interaction (trade) among people. In short, religious liberty is a catalyst for the freedoms that constitute democratic civil society and promote prosperity over the long haul.
Four Lessons from an Enlightened Time and Place
Our empirical journey to look for places where religious liberty may have had an impact on economic development and democratization takes us back to Northwest Europe in the 17th and 18th centuries, specifically to the Netherlands and England (and by extension the British American colonies). It was here that we see the beginnings of modern democratic governance, the rise of a liberal commercial culture, and the first steps toward industrialization. It was also a period of increasing religious pluralism and scholarly innovation, with the likes of Locke, Hobbes, and Smith laying the intellectual bedrock for liberal societies. While it may be that such cultural changes were coincidental to economic growth, exploring the potential causal linkages is worthwhile. And if this relationship held true four centuries ago, there is reason to think it holds true today. To that end, we offer four lessons from the historical experiences of the Netherlands, Britain, and the British American colonies.
Lesson 1: Religious Freedom Promotes Diversity, Security, and Prosperity
Freedom of religion was pioneered slowly by religious people who accepted the inevitable permanence of religious diversity and strongly desired a cohesive, secure, and prosperous society.
Religious pluralism is an essential ingredient to religious liberty. If all individuals within a society shared the same beliefs and set of worship practices, there would be little, if any, need to ensure the rights of religious dissenters; they simply would not exist! Looking at cultures writ large, we may be tempted to think that religious homogeneity is a defining feature of a...