In two much-anticipated decisions rendered by the Supreme Court just before it recessed for the summer--Van Orden v. Perry and McCreary County v. American Civil Liberties Union of Kentucky--the Court was asked to decide whether the display of the Ten Commandments on public property is a forbidden "establishment" of religion. The First Amendment forbids Congress to make any law respecting an establishment of religion--that is, it may not create an established church, such as the Church of England, or the Roman Catholic Church in Italy. The displays at issue in the Court's two cases were on state, not federal, property; but the Fourteenth Amendment has been interpreted, questionably but conclusively, to make most of the provisions of the Bill of Rights, including the establishment clause of the First Amendment, applicable to state and local action.
In the Van Orden case, the Ten Commandments were inscribed on a monument on the grounds of the Texas State Capitol. The grounds were sprinkled with monuments of diverse character, including monuments dedicated to the Texas Rangers, the Texas Cowboys (the football team), the Heroes of the Alamo, Volunteer Firemen, and Confederate Veterans. The Ten Commandments monument had been given to the state 40 years earlier by the Fraternal Order of Eagles, at the suggestion of Cecil B. DeMille, who was promoting his movie The Ten Commandments; and during this long interval, no one had complained about the monument until Van Orden. The Court held that the display did not violate the establishment clause. But in the other case, McCreary, where the Ten Commandments were displayed in a Kentucky courthouse, a differently composed majority of the Court held that the display did violate the clause.
I want to begin by considering from the ground up as it were, as a speculative exercise unrelated to the legalities, why a legislature should be forbidden to establish a church. That is, suppose a large majority of citizens belong to a particular sect which they naturally believe has the truest understanding of religion. What more natural than that they should try to embody their belief in law by pressing for legislation that will "establish" their sect as the "official" religion of the state or nation by imposing a tax to finance it? Of course the people who do not belong to the sect will not want to pay such a tax, but many government expenditures offend numerous citizens--think of all the people who oppose the war in Iraq; they nevertheless are taxed to support it.
It might be argued that being forced to support a religion one doesn't believe in is peculiarly offensive. But, if so, a law to establish that religion would be unlikely to be enacted. Minorities with strong feelings about an issue regularly prevail in legislative battles--think of all the laws that are passed forbidding discrimination against various minorities.
In fact, there is such religious pluralism in the United States that probably in no state except Utah could a law be passed establishing a particular religious sect even if the establishment clause had never been held applicable to the states. Almost all establishment-clause cases involve efforts to "establish" religion in general (versus nonbelief), monotheism, Judeo-Christian monotheism, or Christianity. These efforts take such forms as making time for voluntary prayer in public schools, encouraging public school instruction in "intelligent design," providing public funds for secular education in religious (mainly Catholic) schools or for the display of the creche during Christmas, or, as in the two recent cases, displaying religious materials on public property, usually without cost to the public--it is easy enough to obtain donations of such materials, as in the case of the Ten Commandments monument given Texas by the Fraternal Order of Eagles at the suggestion of DeMille.
Some of these efforts are held to violate the establishment clause, others not; there is no discernible pattern or crisp legal standard. From a purely economic standpoint, it seems to me that the case for permitting such "establishments" should turn on whether the likely effect is merely to offset some subsidy for secular activities. Obviously the fact that the public schools are "free" to the parents, being supported out of taxes, places religious and other private schools at an arbitrary disadvantage, so there is nothing wrong (remember I am speaking only of the economics of the question) with providing a comparable subsidy so that parental choice will not be distorted.
The subsidy of secular activities is more subtle in the case of public display, but it is nonetheless present. Suppose that at Christmas time the public grounds display only secular aspects of Christmas, such as Santa Claus, and refuse to display a creche; then religious Christians are denied the same free opportunity to advertise, and enjoy seeing, their version of Christmas. Similarly, suppose the Texas State Capitol welcomed a large variety of secular displays (as indeed it does) on its capacious grounds, but refused to permit a religious display; this would give a cost advantage to secular displays because they would be free both to the sponsors and to the viewers.
Some people are offended by any religious display; but given the nation's religiosity, probably more people are offended by the banning of all religious displays from public property, which they interpret as sending a message of hostility to religion in general or to the dominant Judeo-Christian monotheism in particular. The case against requiring the teaching of "intelligent design," a thinly disguised version of Biblical inerrancy, is stronger because it confuses religion with science and weakens Americans' already dangerously weak scientific understanding. An individual is entitled to reject science, but he should be taught it, and the teaching of science is impaired if religious dogma is treated as a form of science.
If secular activities are not being subsidized, I don't think there is a strong economic case for religious subsidies any more than for other private goods. It is possible to argue, however, that subsidizing displays of the Ten Commandments does create value in an uncontroversial sense, because they are primarily understood nowadays as an ethical rather than religious statement. The government is permitted to "propagandize" on behalf of uncontroversial moral principles, and the Ten Commandments contain arresting statements of some of those principles, such as "Thou shalt not kill." The complication is that some of the commandments are sectarian, such as the injunction to worship only one God.
Although atheists are in the forefront of litigation against alleged establishments of religion, there is a powerful argument first made by David Hume and seemingly illustrated by the state of religion in Western Europe that an established church weakens rather than strengthens religious belief, and, a closely related point, that rather than fomenting religious strife (a concern of the framers of the Constitution) it induces religious apathy. Hume thought that religious officials paid by government would act like other civil servants, a group not known for zealotry, because they would have no pecuniary incentive to make coverts or maximize church attendance. That is a good economic argument: if you are paid a salary that is independent of your output, you will not be motivated to work beyond the minimum requirements of the job. A less obvious point is that a public subsidy of a particular church will make it harder for other churches to compete. The result will be less religious variety than if the competitive playing field were equal. A reduction in product variety (with no reduction in cost) will reduce demand for the product.
This point is less compelling than Hume's, because of offsetting considerations. The subsidy may stimulate demand for the established church by reducing the quality-adjusted cost of attending it--suppose the subsidy is used to build magnificent cathedrals or hire outstanding organists and choirs. The increased demand for the services of the established church may offset the lack of religious variety. Moreover, if the subsidy causes the officials of the established church to become indolent, this may offset its cost advantage and facilitate the competition of other sects.
Empirically, however, it does seem that established churches do not increase, and, judging from the experience of most though not all European countries (Poland is a major exception), probably diminish religiosity, consistent with Hume's analysis. However, his analysis is probably inapplicable to the attenuated forms of establishment that are all that are feasible in a religiously pluralistic society such as that of the United States (of course it may be pluralistic in part for Hume's reason). A public display of the Ten Commandments is a far cry from a state-salaried minister, so far as the impact of public support of religion on proselytizing is concerned.