Does economic theory apply to the Church?

Application of Economic Concepts to the Church (October 2024)

Economics has been famously referred to as ‘The Dismal Science‘ as it has motivated some bad outcomes for society, such as driving down wages, minimizing full-time employment, and loss of jobs due to mechanization and technology.  Another factor to economics’ detriment is that it is not always successful at predicting the future.  It has been said, partly in jest, that economists have predicted eleven of the last seven recessions.

Economics has also been applied to smaller-scale entities such as individual businesses, markets and industries.  An interesting fact about economics is that it does not apply just to financial systems.  Economics is, at its core, a study of human behaviour, individually and in groups, in their pursuit of personal enrichment.  This can apply to many non-financial and quasi-financial systems.

The following are just a few economic principles and how they may apply to the Church.

Economies of Scale – Organizations with a significant percentage of their costs being fixed will benefit from increasing the scale of their operations.

Most churches have a significant portion of their costs fixed, being those that do not go up and down significantly with changes in the size of their congregations.  Examples include mortgage payments, building cleaning and maintenance, lawn and snow services, and insurance costs.  Even a pastor’s salary can be fixed in the case of a small congregation that has just one clergy member and are unable or unwilling to change that to a part-time position.

Thus, economies of scale apply to churches very well.  This plays out in some successful Roman Catholic churches and Protestant megachurches which tend to have larger congregations and a higher percentage of their facilities put to use.  And they generally have fewer members of the clergy per 100 congregants.  However, Protestant churches, in general, are less efficient because of their smaller congregations and often under-used building capacity.  They have fewer members to fund their fixed costs.  This lack of efficiency has resulted in many shuttered churches.  

Perception of Value – People value items in accordance with how much the item cost them.

Churches which do not impose any significant cost to their members (financial and non-financial) will not instill as much of a sense of value and belonging in their congregations.  Polls have shown that conservative protestant churches have had better (not necessarily great) success rates over time, and some have attributed this to the higher financial, time and behavioural expectations placed on their members.  Expectations (costs) result in greater commitment (perceived value).

Supply and Demand – Value increases when demand for a product exceeds its supply (and vice versa).

Churches are suffering all over the country.  This is often the result of shrinking congregations not being able to maintain large church buildings and their associated costs.  Basically, as demand for their services shrink, churches have difficulty in decreasing ‘supply’ of the service due to over-investment in static, owned real property.  In order for a church to be more attuned to changing demand, greater use can be made of non-owned, flexible accommodations such as rented facilities that are open-concept so that they can be remodelled easily based on the demand for the church’s individual services. 

Free-boarding – Sharing of the products or services of a system without cost or constraint results in unsustainable usage.

Church-goers avail themselves of various church services and programs without any regulated demand on their financial or time-based contributions.  There are soft pressures on the supply of each, but they are generally not focused on the amount of service received (e.g., members with children contributing more than childless members). Accordingly, free-boarding may increase demand for ministry services without a commensurate increase in church funding.  As many church-goers get comfortable with the fact that others will pay the costs, free-boarding can eat away at the sustainability of a church.

Law of Diminishing Returns – Each extra dollar added to a system will produce smaller and smaller returns.

Churches seem to aim its ministry efforts without much data-driven analysis on which methods and audiences will be most successful.  If a successful outreach ministry is expanded by a church it may not produce results commensurate with the extra costs and efforts made.  This economic law suggests that aiming a little effort in a number of areas will usually be more effective than a lot of effort in one area.

These are just a taste of how economic principles apply to the Church.  An in-depth review would result in many more.