From Worship to Worldly Pleasures: Secularization and Long-Run Economic Growth

In medieval times, most people identified with religious values and aggregate income and productivity grew at glacier speed. In the 20th century, religion played a much lesser role in daily life and income and productivity grew at high and unprecedented rates. The present paper develops a simple economic theory of identity choice that explains both stylized facts as well as a period of secularization during which an increasing share of the population abandons religious identity for worldly pleasures and aggregate productivity takes off. An extension of the basic model investigates the Protestant reformation as an intermediate stage. Another extension introduces socially-dependent religious preferences, establishes the endogenous emergence of multiple, self-fullling equilibria, and demonstrates how a social multiplier amplifies the speed of transition.