Religious liberty is a core component of America’s legal culture. William Penn, the Quaker founder and proprietor of colonial Pennsylvania, played an indispensable role in ensuring that it is. Indeed, Thomas Jefferson—the author of one of the most celebrated religious liberty laws in American history, the Virginia Statute for Religious Freedom of 1786—described Penn as “the greatest lawgiver the world has produced, the first in either antient or modern times who has laid the foundation of govmt in the pure and unadulterated principles of peace of reason and right.” Jefferson was correct. After all, the commitment to liberty of conscience that characterized colonial Pennsylvania traced directly to Penn’s vision, example, and determination: Pennsylvania enacted more laws about religious tolerance than any other British American colony, both before and after Penn’s death. Delaware, which Penn also owned and which constituted the “lower counties” of Pennsylvania until it became an independent state in 1776, likewise enacted religiously tolerant laws even when Penn permitted it to govern itself with a separate assembly after 1704.

Societies embracing religious liberty have been comparatively rare in human history. Political rulers possess strong incentives to control the spiritual marketplace, whereas the clergy of a dominant faith will seek state protection to prevent rival groups from challenging their hegemony. With a close affinity for church-state unity, why would any nation liberalize laws and allow greater freedoms for religious minorities? In contrast to explanations that focus on a shifting ideational landscape, this chapter argues that reasons for the rise of religious liberty can be found in the economic incentives facing political leaders. When deregulating the religious market enhances revenue collection, economic growth, and bolsters needed immigration, governments will reduce restrictions on religious minorities. Colonial America remained divided as to whether religious liberty was a good idea, but the economic necessities facing a new nation led to passage of the First Amendment.