Abstract:

This paper looks at the foundational principles of what passes as mainstream economics today. It contends that economics in keeping with many other forms of knowledge has been influenced by the overall trajectory of post-enlightenment humanistic thought. As a result it contends modern economics has within it certain assumptions and an overall directional paradigm that may be intrinsically opposed to the ethos of Islam; thereby rendering an Islamic Finance bereft of reforming these principles as somewhat of an oxymoron.

"There is no such thing as philosophy-free science; there is only science whose philosophical baggage is taken on board without examination."  -- Daniel Dennett

 

“So where then are you going?”

[Qu’ran: 81:26]

 

 

The Islamic tradition, like most major religious traditions places a great deal of emphasis on intention and direction. The aforementioned Qu’ranic query harkens the reader to constantly re-visit his motives and assumptions in view of the larger context and direction that he/she is pursuing. This interplay between means and ends is one of vital importance when examining the role of any social science, with economics being no exception. Far from exclusively being an Islamic proposition, the noted economist E.F.Schumacher, alluded to this in his book, ‘Small is Beautiful’, wherein he highlighted that all economics is derived from a larger instructive paradigm of meta-principles. It was Schumacher's position that a viable alternative to what he considered the materialist excesses of modern economics would best be served by a faith based paradigm. Though he highlighted Buddhism as his illustrative example in the landmark fourth chapter of his book, he was keen to state that, " The choice of Buddhism for this purpose is purely incidental; the teachings of Christianity, Islam or Judaism could have been used just as well.” (1989, p.55)

 

The economic system that Schumacher and others were keen to replace, had its foundational principles very much in place in the centuries preceding him. In the context of this paper, it would be pertinent to examine the historical genealogies of these principles as they would be directly relevant to any ongoing discussion concerning Islamic Economics; inclusive of its subset Islamic Finance and their subsequent direction. This is because for any successful "Islamisization of knowledge" it is vital that the philosophical foundations underpinning that science be recast into the Islamic metaphysical framework. As Al Attas (1984) says concerning this, "We do affirm that religion is in harmony with science. But this does not mean that religion is in harmony with modern scientific methodology and philosophy of science. Since there is no science that is free of value, we must intelligently investigate and study the values and judgments that are inherent in, or aligned to, the presuppositions and interpretations of modern science. We must not indifferently and uncritically accept each new scientific or philosophical theory without first understanding its implication and testing the validity of values that go along with the theory." (1984, p.114)

 

While much can be written about this, the meta-principles of Modern Economics are arguably best traced back to post enlightenment era thought arising from Western Europe. The enlightenment period and its subsequent general direction, referred to by some[1] as ‘technicalistic progress[2]’, was a path that Western Europe was to adopt from the 17^th century onwards. In general, this involved a transition from religious to secular thought with attempts constantly made to identify ‘rational’ grounds on which to base social, political and economic structures.

 

The great 'Western Transmutation', referred to as such by Hodgson (1974), was marked primarily by a shift in societal structurethrough previous ‘traditional’ societies morphing into ‘rational’[3] ones.Scholars such as Foucoult (2005) have noted this period as when ‘man’[4] first emerges within the field of western knowledge. Others such as Eisenstein (2007) argue that it was the 17^th century that saw the definitive articulation of the 'Scientific and Technological Program'[5] that was to further define the paradigm of the 'separation of man' henceforth. According to Eisenstein (2007),"the slow accumulation of technology and empirical science through the Renaissance period gradually eroded nature's forbidding immensity, bringing us to a point where…an assault on its mysteries became conceivable."

The 'assault' was a process by which the ancient maxim[6] of Protagoras (500 B.C) received renewed vigor. With the 17^th century enlightenment era heralding the arrival of ‘rational man’ and at a later date his economic counterpart ' homo economicus', it was not long before this period would be referred to by Nietzsche as the ‘Death of God[7]’.

 

Though the process would involve various stages, it was arguably the great names of the Scientific Revolution—Galileo, Newton, Descartes, Leibniz, Bacon— who in redefining motion, matter, energy and force would go on to provide the conceptual underpinnings that would help set into place what Eisenstein (2007) refers to as the 'objectification of nature'. This process would go on to dominate practically all mainstream fields of academic knowledge (with economics being no exception) for the next three centuries.

 

In summary, mainly reliant on the narratives of Eisenstein (2007) and Nasr (2002, 2007), the key elements of post enlightenment humanistic knowledge could be primarily alluded to as being the following:

(a)    Emphasis on the secular[8]

(b)   Mechanization of the world with a subsequent emphasis on determinism[9]

(c)    Emphasis on rationalism and empiricism with a subsequent exiling of qualitative experience from the definition of empirical reality[10]

(d)   Separatism and dualism with subsequent emphasis of reductionism towards nature[11]

(e)    A culmination of the foregoing features as a quest for absolute control of nature[12]

As a result of the above; intellectual discipline in Western Europe was increasingly sought to be defined through secular, value-neutral and materialist perspectives, with further prestige given to rational and empirical scientific knowledge as being distinguished from other forms. Of this, as mentioned, special importance was accorded to Newtonian physics mainly because in reductionist order it was arguably the most precise. Just as using a single law of motion for particles Newton was able to present a unified treatment of a large number of seemingly unrelated phenomena; similar efforts were made to use reductionist laws that would explain economic behaviour.

Historians of economic thought such as Mirowski (1984) maintain that the founders of neoclassical economic theory imported the mono-utility approach from nineteenth century physics in an attempt to impose a “unity of analytical tools” between the disciplines. He maintains that "Neoclassical economic theory is bowdlerized nineteenth century physics. … Present research techniques may be favoured because they were appropriated from physics. … neoclassicism was not ‘simultaneously discovered’ because it was ‘true,’ instead, the timing of its genesis is explained by the timing of the energetics revolution in physics, and by the fact that scientifically trained individuals in different Western European countries at that time had access to the same body of knowledge and techniques." (1984, p. 377). Later authors, such as Olson (1990) also document the prestige accorded to Newtonian physics and the subsequent effort to model social sciences along similar lines.

 

The intent of founders of modern neoclassical economics, such as Leon Walras in stating that “the pure theory of economics is a science which resembles the physico-mathematical sciences in every respect” (p.363), is evidently consistent with Mirowski's thesis . As such, neoclassical economics as it subsequently emerged began to strip itself free of the normative

moral value judgements previously emphasized by Aristotelian, Judeo-Christian thought culminating in its formal identification as a 'scientific' discipline after the publication of Alfred Marshall’s treatise, Principles of Economics, in 1890. (Schumpeter, 1951, p.21).

 

With a continual emphasis on equating economics with more empirical sciences such as Physics, key concepts of conventional economics emerged in the form of rationality[13], maximization of utility[14], positivism[15], laissez-faire[16], econometrics[17] and the ‘invisible-hand’ of market forces[18]. Despite on-going debate, these concepts largely provide the meta-principles that support the modern market economy today.

 

In summary, when we review the epistemological foundations of modern neoclassical economics and its subsequent core meta-principles it is perhaps not co-incidental that Schumacher (1989) sought to contrast it with those embodied by faith principles. Within the rationality of (neoclassical) economic theory and the Benthamite "utility" of money the process of counting the consumption of natural resources as income is but 'rational'. As Eisenstein says, "In terms of conventional economics, it may actually be in an individual's rational self-interest to engage in activities that render the earth uninhabitable.[19]" This may be potentially true on the collective level as well: as Diwany (2003, p.13) and Eisenstein illustrate using the exponential nature of future cash flow discounting," it may be more in our "rational self-interest" to liquidate all natural capital right now -- cash in the earth -- than to preserve it for future generations. After all, the net present value of an eternal annual cash flow of one trillion dollars is only some twenty trillion dollars (at a 5% discount rate). Economically speaking, it would be more rational to destroy the planet in ten years while generating income of $100 trillion, than to settle for a sustainable level of $3 trillion a year forever.[20]"

 

Strangely enough the effects of destroying the planet appears to be of relatively little concern within mainstream economic 'rationale' as can be discerned from statements such as those of Yale professor William Nordhaus who proclaims, "Agriculture, the part of the economy that is sensitive to climate change, accounts for just three percent of national output. That means there is no way to get a very large effect on the US economy." Likewise the Oxford economist Wilfred Beckerman is reported to have said: "Even if net output of agriculture fell by 50 percent by the end of the next century, this is only a 1.5 per cent cut in GNP.[21]"

 

It is evident that despite claiming to be amoral and free from normative assumptions; neoclassical economic theory posits idealizations with regards to human welfare and happiness, “perfect” competition and the consumptive capacity of people, much of which is on the opposite side of the narrative to faith positions. Its record is none too impressive either, since it has been associated with the disintegration of family life and ideologically blamed as a failure to bring peace of mind and inner happiness (Easterlin, 2001, 1995 and 1974). Scholars such as Oswald (1997), Blanchflower and Oswald (2000), Diener and Oshi (2000), Kenny (1999), Lane (2001), Douthwaite (1992, 1999) and Layard (2005) have all documented how vast increases in wealth in Western societies have failed to increase contentment, satisfaction and a sense of wellbeing. Henry George in his landmark book, Progress and Poverty, condemned the resultant contrast between wealth and poverty brought about by neoclassical economics, when he wrote, “So long as all the increased wealth which modern progress brings goes but to build great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent” (1955, p. 10). In more recent times, Nobel-laureate Amartya Sen has argued that “the distancing of economics from ethics has impoverished welfare economics and also weakened the basis of a good deal of descriptive and predictive economics”, and that economics “can be made more productive by paying greater and more explicit attention to ethical considerations that shaped human behaviour and judgment” (1987, pp. 78-79).

 

In contrast, on the opposite side of the spectrum most faiths emphasize a Divine element towards nature, connecting the economic dimension to higher, wider dimensions and placing the acquisition of material wealth in the service of communal belonging and spiritual advancement, none of which quite fits in within the 'rationale' of homo economicus. In fairness, perhaps Schumacher's allusion to a formal faith (in Buddhism) was encompassing of a broader context of what he considered 'Sacred[22]'. The recent financial crisis and various social movements that have arisen in its wake have in a large part been calling for a return to a sacred dimension of economics as embodied in the works of Charles Eisenstein (2011) and Eileen Workman[23], neither of whom advocate a particular religion or creed in their works, but who advocate a state of being with regards to the world that would be consistent with Schumacher's definition of 'Traditional Wisdom[24]' and inconsistent with the rationale of Homo economicus[25].

 

Change as a paradigm can only be effective when one is aware of what exactly needs to be changed. Although this paper has deliberately focused on economics, at a higher level economics itself arises out of a normative assumption with regards to the world. As Eisenstein (2007, 2011) arguably illustrates in his book, Sacred Economics, the current paradigm arises out of a paradigm of separation, reductionism and control in keeping with the dominant meta-principles of the supportive framework (post enlightenment scientific humanism) from which it arose.

 

For those working in the field of Islamic Economics or Islamic Finance, it is imperative that any proposed viable reformation of the current economic system involve a desire to look within the proverbial shadows of implicit assumptions we may hold with regards to the nature of the world, ourselves and money. Such reflection would need to take place at the level of the collective as well as the individual, for there is a dire need for practitioners in the industry to engage in an analysis that is holistic (by which is meant a structural analysis of means and ends, direction etc.) and not one that is reductionist. This is the way Scholars engaged with the Sharia (Islamic Law) from the very inception of Islamic Jurisprudence construed things. With the Sharia said to represent God's Mercy and Justice on the earth, it is debatable as to they would evaluate the current Islamic Finance industry. In that regards it would perhaps be apt to conclude with the words of Ibn al-Qayyim who once wrote:

 

"The principles and fundamentals of the Sharia concerning the injunctions and the good of humankind in this life and the next are all based on justice, mercy, the good of man, and wisdom. Every situation in which justice succumbs to tyranny, mercy to cruelty, goodness to corruption, wisdom to foolishness, has nothing in common with the Sharia, even if it is the result of an allegorical interpretation [tawill]. For the Sharia is the justice of God among His servants, the mercy of God among His creatures, His shadow upon His earth, and His wisdom, which is both the proof of His own existence and the best witness to the authenticity of His Prophet."

 

[Ilam al-muwaqqiin an rabb al-alamin, vol. 3, Cairo, p. I, Ibn al-Qayyim Jawziyya]

 

 

 

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* This piece has a Creative Commons Copyright, the author can be contacted at Yusuf.jha@gmail.com

 

[1] See: M.G.Hodgson, The Venture of Islam: Conscience and History in a World Civilization, Vol.3, The Impact of the Great Western Transmutation: The Generation of 1789, p.176 – p.222

 

[2] See: Ibid, p.186, M.G.Hodgson, describes the term ‘technicalization’, as being ‘a condition of calculative

(and hence innovative) technical specialization, in which the several specialties are interdependent on a large enough scale to determine patterns of expectation in the key sectors of a society’, He chooses to distinguish between the term 'technicalization' and 'industrialization', in viewing the latter as being only one aspect of the whole process.

 

[3]See: M.G.Hodgson, The Venture of Islam: Conscience and History in a World Civilization, p.181 - Hodgson defines a rational society as one in which, “choices can be determined less by the dictates of ancestral custom and more by practical calculation of immediate advantage.” In keeping with Benthamite utility, elsewhere he defines it as one in which, “Immediate efficiency will be valued more highly than continuity with the past, and people will therefore be less hesitant about change lest it prove degeneration.”

 

[4] See: M.Foucault, The Order of Things: An archaeology of the human sciences, preface xxv – “But as things become increasingly reflexive, seeking the principle of their intelligibility only in their own development, and abandoning the space of representation, man enters in his turn, and for the first time, the field of Western knowledge.” It seems by ‘man’, Foucalt meant to affirm the shift to ‘rational man’, as Protagorian man.

 

[5] For an understanding of what Charles Eisenstein means by these terms please see: http://www.ascentofhumanity.com/chapter1-1.php [accessed 17 April 2013]

 

[6] "Man is the measure of all things: of things which are, that they are, and of things which are not, that they are not"

 

[7] Readings of Nietzsche's works indicate that it was not an attempt to say God does not exist or that "God dies" but was instead a metaphorical assertion that God as understood in Christian Western Europe was culturally, historically, and/or sociologically no longer relevant in the domain of societal affairs. As such, his primary concern was historical, that of demarcating a new epoch in human existence; saying less about God, or of a conception of God, more about culture and history. In that light Nietzsche's comments are an admission that effectively presupposes the effectiveness of the 'rational' assault on Christianity as having permanently altered the direction of those societies, thereby creating a historical landmark after which things would never be the same again; a landmark he chose to refer to as the "Death of God".

 

[8] With nature being a self-subsistent entity that can be encapsulated exhaustively in the quantitative formulae of natural sciences. A key underpinning to this were theories pertaining to motion and force discovered by Galileo and formalized by Descartes.

 

[9] Isaac Newton's famous equation F= ma (force equals mass times acceleration), put Galileo's discovery into rigorous mathematical form. Newtonian physics would go on to provide inspiration for a deterministic approach that would subsequently impact even the social sciences.

 

[10] In distinguishing between primary and secondary qualities Galileo arguably laid the foundations for modern empiricism: reality is what can be measured quantitatively, and it is only through the channel of empirical science that access to 'reality' defined as such can be gained. This issue was later taken up in philosophy by David Hume as he became one of the pillars of modern empiricism, his famous statement echoing the view of many subsequently: "Let us ask, Does it contain any abstract reasoning concerning quantity or number? No. Does it contain any experimental reasoning concerning matter of fact and existence? No. Commit it then to the flames; for it contains nothing but sophistry and illusion."[From An Enquiry Concerning Human Understanding, Part II. 1748.]

 

[11] Following the Galilean split of the universe into the objective and the subjective, the next step was to eliminate the latter entirely by quantifying the qualitative. Descartes immortal declaration, "I think, therefore I am," took to the most extreme conclusion Galileo's separation of objectivity and the experienced world of the senses. Cartesian duality allowed for mind to be separate from the world, with 'being' now in the mind, to be human was to be separate from the world experienced; that is, from nature in the most general sense of the word. Cartesian dualism thus allowed the entire universe to be seen as a disconnected object of perception; which is where reductionism followed. In Newton's universe, objects were reducible to mass interacting through impersonal, deterministic laws. In time, sounds were reduced to sine waves, and visual experience to pixels. The Behaviorism of the mid-20th century as embodied through Pavlov's experiments sought to find the 'technology of behaviour' and served as a prelude to today's happy drugs that explain our emotions in the context of serotonin imbalances. In the end the reductionist paradigm settled on us all being objects that are merely different permutations of identical, generic protons, neutrons, and electrons, until it arguably hit a hitch in Quantum mechanics. Reductionism is based on the philosophy of determinacy and of uniqueness being an illusion; both of these were challenged at the Quantum level.

 

[12] In an ultimate sense the quest of reductionism is a quest for control. If the complex properties of the chemical elements could be reduced to simple subatomic particles, which in turn could be unified with their various subatomic forces into a single unified force comprising the "Theory of Everything" then 'man' would be in control. The Newtonian world of control that determinism opens up has been searching for the 'Theory of Everything' since the time of Einstein, with Unified Field Theory and String Theory proving ever elusive; Quantum mechanics has thrown a spanner in the works. Ironically, further reductionism has compounded the narrative with some claiming that arguably “good physics is now refuting bad philosophy”. The philosopher and scientist Wolfgang Smith (2003) points out and demonstrates (2003) that

the reduction of quality to quantity does not even apply to the natural world, let alone to the human realm.

Smith also aims to demonstrate that this is the key to integrating the findings of physics into “higher orders of knowledge,” showing that the findings of quantum mechanics reveal “reality is nonlocal.” In a word, not everything without exception can be understood or explained exclusively in quantitative terms.

 

[13] The preference for many economists to seek equivalence with Physics and its natural laws was at play in the equating of rationality with the serving of self-interest through the maximization of wealth and want satisfaction; thereby, allowing for the drive of self-interest to be referred to as the “moral equivalent of the force of gravity in nature.” (Myers, 1983, p.4)

 

[14] Just as using one law of motion for particles Newton was able to present a unified treatment of a large number of apparently unrelated phenomena, economists sought to adopt the maximization of utility as the sole acceptable principle of explanation for human behaviour. As such, explanations of human behaviour which take into account motivations other than selfishness or greed were not to be considered acceptable by modern mainstream economists, though in recent times the emergence of other perspectives such as institutional economics and behavioural/experimental economics have challenged this dominant methodology.

 

[15] Positivism in the conventional economic sense is that of being “entirely neutral between ends” (Robbins, 1935, p.240) or “independent of any particular ethical position or normative judgment.” (Friedman, 1953)

 

[16] Laissez-faire, literally meaning "let do", broadly implied freedom from state intervention, regulation, law and taxes for private enterprise. Following the Great Depression of the 1930s, primarily as a result of Keynesian thought, this idea was revised and somewhat abandoned, though it still finds echoes in the neoliberal advocacy for free trade in global markets. A key point of reflection is that such contemporary advocacy is usually 'one way' with mainly rich industrialized nations advocating removal of local government barriers, tariffs and regulation that may hinder their own domestic corporate interests from access to the global markets, while simultaneously protecting their own economies from foreign interference. Perhaps another key question is whether free trade coupled with interest and its effects as defined in this paper can ever be fair trade?

 

[17]Perhaps owing to the prestige of mathematics and physics as being value free, economics was conceived of as being a set of natural laws, amenable to analysis by mathematical models. Thereby displacing socio-historical qualitative analysis as an equivalent approach to the subject. This has not been without contention as McCloskey (1984) discusses how mathematics is used to impress and appear authoritative, and not because it adds any depth to the economic argument. Likewise, Blaug (1998) writes that “Economists have gradually converted the subject into a sort of social mathematics in which analytical rigor as understood in math departments is everything…”

 

[18] The Invisible Hand as coined by Adam Smith (1937) was intended to illustrate how an individual through pursuing his self-interest would be able to, with the conjunction of the forces of competition and supply and demand, serve a greater social need through allowing for an allocation of resources in society. A quote from Book IV, chapter II, paragraph IX of Smith’s The Wealth of Nations illustrates his thought: “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” While Smith’s theory is an oft-cited bedrock for free market capitalism, there has been much controversy as to what the author actually intended and how he saw his theory being applied. Interestingly Islam could be arguably said to have been the world's first free market ideology (Graeber, 2011), however a key point is that its free market philosophy requires the negation of interest, the coupling of interest within such a framework could arguably be said to represent a charter of freedom to oppress.

 

[19] < http://www.realitysandwich.com/money_and_turning_age> [Accessed 13 November, 2012]

 

[20] Ibid.

 

[21] For a response to these and other quotes by ecological economist Herman daly, please see the following paper, page 14: <http://www.hudson.org/files/documents/BradleyCenter/Transcript_2008_06_30_Rural_Philanthropy.pdf> [Accessed 13 November, 2012]

 

[22] " …the reign of quantity celebrates its greatest triumphs in "the Market." Everything is equated with everything else. To equate things means to give them a price and thus to make them exchangeable. To the extent that economic thinking is based on the market, it takes the sacredness out of life, because there can be nothing sacred in something that has a price." 

"Nature, it has been said, abhors a vacuum, and when the available "spiritual space" is not filled by some higher motivation, then it will necessarily be filled by something lower – by the small, mean, calculating attitude to life which is rationalized in the economic calculus."

Quotes from E.F.Schumacher (1998) taken from <http://neweconomicsinstitute.org/content/small-beautiful-quotes> [Accessed 07 November 2012]

 

[23] <http://www.sacredeconomics.org/SacredEconomics/SACRED_ECONOMICS.html> [Accessed 07 November 2012]

 

[24] “Everywhere people ask: ‘what can I actually do?’ The answer is as simple as it is disconcerting: we can, each of us, put our inner house in order. The guidance we need for this work cannot be found in science or technology, the value of which utterly depends on the ends they serve; but it can still be found in the traditional wisdom of mankind.”Quotes from E.F.Schumacher (1998) taken from <http://neweconomicsinstitute.org/content/small-beautiful-quotes> [Accessed 07 November 2012]

 

[25] In economics, homo economicus, or economic human, is the concept that human beings are purely rational and narrowly self-interested actors who make judgments toward their subjectively defined ends based on the maximization of their utility.