Syed Agil & Aidit Ghazali

This book is an important introduction to the topic of Methodology of Economics in which the pioneer thinkers of modern Islamic economic literature had shared light on ways to develop the body of knowledge of Islamic economics and how.

Each chapter is written by one of the distinguished economist working in Islamic economics. The notable contributors include: Prof. Muhammad Nejatullah Siddiqi, Prof. Anas Zarqa, Prof. Monzer Kahf, Prof. Muhammd Akram Khan, Prof. Muhammad Arif, Prof. Khurshid Ahmad, Prof. Syed Omar bin Syed Agil and Prof. Aidit bin Ghazali.

The book explains that the objective of religious life should be to change this world, including the personality of the individual himself and extending to the whole of human society, so as to reconstruct it in accordance with the will of Allah as revealed in the Qur’an.

The religion should be understood directly from the Qur’an aided by the Sunnah, and all human interpretations should be treated as secondary, tentative and, in principle, liable to error and open to correction.

It is emphasized that we need a fresh realisation of the truth that understanding man and the world of nature are essential not only for the realisation of the values but also for a proper understanding and appreciation of them, and that our backwardness in technology is a source of our weakness in the determination to do our best in fulfilling the Mission.

The importance of free thinking and independent judgment should be recognised in all human affairs, along with the commitment to the expressed will of God. The system of education and training should especially encourage fresh thinking and initiative in areas thinly covered by the Shari’ah or left open for human decision making. Each generation should be allowed the fullest freedom of evolving its own strategy for the fulfilment of the Mission fullest freedom of evolving its own strategy for the fulfilment of the Mission and developing its own way of Islamic living, bound only by the eternally binding provisions of the Shari’ah and refusing to elevate anything else in the Islamic heritage to that status.

There is no need to reject any human preferences, manners and institutions merely on account of their having originated in a non-Muslim society unless they deserve a rejection according to the scale of values given by Allah. Humanity today is almost unanimously agreed on certain fundamental values for which Islam stands, such as freedom, equality, justice and democracy – a situation that did not exist a few centuries earlier.

Economics is not devoid of value judgments as we are often led to believe, nor can it ever be. Neither is Islam devoid of positive assertions about economic reality. What is classified as a “value judgment” rather than a “positive statement” is occasionally a function of our limited knowledge and even of our religious beliefs.

There are thus several areas in economic theory where value judgments have a crucial role to play, and in these areas we can make a distinct contribution as Muslims.

Needless to say, several areas of economics are truly positive and cannot be different in an Islamic or in any other framework (such as first and second order conditions for achieving a given amount of production with minimum costs, given factor prices and a production function).

Methodology of Islamic Economics

The authors explain that any economic system should be founded on an ideology which provides the economic system with its basis and objectives on one hand, and with its axioms and principles on the other. The process followed by the set of axioms and principles in order to bring the economy closer to the objectives of the system represents the testable ground of the system.

Any economic system draws up a framework within which a socio-economic community can utilize natural and human resources for production and distribute the fruits of this production for consumption. The validity of an economic system can be tested by its internal consistency, its compatibility with the systems organizing the other aspects of life, and its provision for improvement and growth.

An economic system is therefore not expected to provide, for example, the specific composition of the exports of a certain country, a practically useful and mathematically manageable production function, or a proposition as to how to aggregate individual demand functions into a nationally aggregate demand. Such components of the economic theory cannot be initiated by the system since they arise in the practical application of the system under a given set of conditions. It is in the light of these conditions and within the framework of a prevailing economic system that such elements of the economic theory can be developed, tested and theorized.

Consequently, a system for the Islamic economy should be formulated on the basis of the Islamic doctrine of life. The axioms and principles of such a system should be stipulated and the process of its functioning should be clarified in order to show its purity and applicability. A lucid distinction, however, should be drawn between the economic system of Islam and any subset of it.

In Islamic literature on economics, little attention has been given to this matter. As a result of this, several works claiming to discuss the “Islamic economic system” in fact deal only with the jurisprudential background of it, or sometimes with the economic principles of Islam. A study of the economic principles only falls short of a study of the economic system, just as a study of the grammar of a language falls short of creating an oratorical skill.

Moreover, a distinction must be made between that part of Islamic jurisprudence which deals with business law (Fiqh al-Mu’amalat) and Islamic economics. The former draws up the legal framework for the latter, while the latter studies the process and outcome of human activity relating to production, distribution and consumption in an Islamic society.

The lack of such a distinction between “Fiqh al-Mu’amalat” and Islamic economics has been another source of the misconceptions in the modern literature on Islamic economics. Several works have used the tools of analysis of ‘Fiqh’ in economics, while several others have studied the economics of Islam from the point of view of ‘Fiqh’. For example, the consumption theory sometimes becomes a restatement of the Islamic laws concerning food and drinks, instead of being a study of the behaviour of the consumer toward the package of available consumer goods, and the theory of production is reduced to a study of the right of ownership in Islam instead of being focused on the behaviour of the firm as a productive unit.

Another great disadvantage in thinking of Islamic economics in terms of “Fiqh al-Mu’amalat” is that such an approach is, by its nature, fragmented and it loses the overall thrust of the economic theory. This has perhaps been responsible for the noticeable absence of a macro-economic monetary theory in all the present literature on Islamic economics.

The study of history is very important for economics because history is the laboratory of humanity. Economics, as one of the social sciences, needs to resort to history in order to carry out its experiments and to derive the long-term trends of the economic variables. History provides economics with two major indispensable aspects, namely, the history of economic thought and the history of economic units such as individuals, firms and economies. Little has been done to present the history of Islamic economic thought.

This is unfortunate because throughout the history of Islam, Muslim thinkers and political leaders have developed their economic ideas to the extent that allows us to look to them as the real founders of Islamic economics. Research is needed to bring to light the economic thinking of great Islamic thinkers such as Abu Yusuf (died 182 H.), Yahya bin Adam (died 303 H.), al-Ghazali (died 505 H.), Ibn Rushd (died 595 H.), al-’Izz bin Abdus-Salam (died 660 H.), al-Farabi (died 339 H.), Ibn Taymiyyah (died 728 H.), al-Maqreezi and others.

The scope of Islamic economics includes study of Islamic values, analysis of real-life economic phenomena and exploration of ways and means to transform the existing economies into Islamic economies.

Therefore, the hard core of Islamic economics provides direct guidance on a small number of questions. A dominant part of the economic reality requires application of human reason and intellect within the over-all divine framework. The question of methodology becomes imminent mainly in the area where human reason is applied. In this area, the general principle is that if a theory does not contradict any divine text it would be open for criticism. The criticism would be on two planes: rational as well as empirical.

A theory must satisfy both the criteria. It should be true on rational grounds and should also be confirmed by empirical evidence. The conformation is sought by Popperian thesis of falsification. It means that a theory would be tested on the criterion of falsifiability. The theories which are not falsified by these two criteria would be accepted. To this extent the methodology of Islamic economics is similar to that of economics.

It further implies that the hypotheses of Islamic economics must be stated in a form that they can be falsified. In other words, the hypothesis must make clear its conditions and predictions. A hypothesis would merit consideration only if it tells the situations in which it would not hold or if it specifies the conditions that would falsify it.

It may be mentioned that the falsifiability criterion applies only to theorems which ask ‘how’ of an economic system. It does not apply to questions of ‘why’ in an economic system because reason can be applied only to questions of ‘how’. It cannot be applied to questions of ‘why’ which takes one to the domain of faith and morality. In economics the questions asked are: how markets behave? How firms take decisions? How economy responds to a certain phenomenon? It does not ask “why” because it takes economics into the field of morality. Since Descartes, the West has learnt to segregate reason from faith and morality. In Islamic economics, questions of faith and morality are quite valid. Therefore, for questions of “why” applies the criteria of faith and morality.

Authors discern a variety of approaches on methodology of Islamic economics. The ‘Ulama’ have been, mainly, restating the position of the ‘Shari’ah’ on various questions. Their explanation contains an implicit awareness of the social reality but their emphasis has been on legality or otherwise of each situation. In their writings, the juridical content is predominant. In a strict sense, their contribution may not be classified as ‘economics’ but in the context of Islamic-economics, their writings form hard core of the subject. They have provided a strong foothold for evolution of the subject.

The writings of both modernists and western educated Muslim economists are mainly conceptual and not theoretical. They are conceptual as they provide an elaboration or analysis of the basic principles of Islamic economic teachings. They are not theoretical as they do not take into account the real-life situation. A theory is generally considered to be a non-falsifiable abstraction of complex real-life situation to explain certain phenomenon and to forecast future behaviour of the variables involved. The literature on Islamic economics as it exists today explains, or analyses the teachings of Islam. It is not related to real life situation. That is what makes it conceptual and not theoretical.

To illustrate, the idea that the Islamic law of inheritance leads to a greater distribution of wealth is conceptually sound and understandable. But a theory propounding the same conclusion would require study of a real-life situation in a time-space framework. Before such a theory is generalised for other similar situations it would be tested against empirical evidence, and modified, if necessary. So far as the idea is not based on the observation and analysis of real-life situation it would remain a concept which may appear to be logical intuitively. The literature on Islamic economics is conceptual and not theoretical in this sense.

The fundamental framework and the axioms of Islamic economics have been derived from divine sources and there is no question of their being tested empirically. But behind the shield of divine axioms are hidden hundreds of ideas derived from these axioms. Empirical evidence would, anyway, be required to verify these ideas which by themselves are not divine. They have been only conceived in the divine framework. Escape from empirical validity of these ideas would weaken the foundations of Islamic economics and may not let it transcend from juridical restatements.

Another escape from empirical testing lies in the explanation, that Islamic economics is a “perceived reality of the future”. A large part of the literature on Islamic economics deals with the ideal Islamic society a goal towards which the Muslim ummah should move. To the extent that this approach sets up the objectives and brings into limelight the extent of departure from the ideology, it is a valuable contribution. But it does not provide Islamic economics with a theory. The approach remains to be conceptual.

In sum, what the ‘ulama’ stated in theological jargon, the Muslim economists have restated in the economic jargon. They have tried to explain how the Islamic teachings may be applied to a modern society. On its own it is a no mean task. It has gone a long way to solicit support from the Muslim elite for the economic concepts of Islam. But stripped bare from the economic jargon, the basic approach remains to be the same as that of the ulama.

It is not to “belittle” the contribution of Muslim economists. The work of Muslim economist has, of course, provided a firm and sound footing for further research. Without this basic work, the contribution of ulama would have remained unheeded. The interest in Islamic economics shown by the Muslim elite all over the world is partly the result of the effort of Muslim economists. But the point is that they have tackled the subject at no higher plane than that of the ulama.

Normative micro-economic theories relating to behaviour of economic agents, only require a study into the institutional arrangements that would force or compliment the economic agents to achieve the desired behavioural objectives, or vice versa. It may not be too difficult a research proposition to find out what institutions in the economy would develop if the economic agents behave according to the Islamic norms.

Let us illustrate this with the help of an example. The entire theory of consumer behaviour in conventional economics is based on a positive assertion about human behaviour that it seeks to maximize satisfaction of human desires. A normative behaviour in an Islamic framework, on the other hand, would require human beings to fulfil their needs – needs which are based on a concept of Maslaha or human welfare rather than on personalised instinctive desires. This gives an entirely new perspective to the behaviour of an Islamic consumer. Yet no rigorous attempt has been made to develop a new theory of consumer behaviour on this basis.

Inductive or Deductive Reasoning

What is the response of Islamic economics to the question of choice between inductive and deductive reasoning? The brief answer is that Islamic economics applies a combination of both the methods. But this brief answer needs qualification. Muslims are the inventors of the inductive reasoning. Before the advent of Islam, the ancient world did produce some great systems of philosophy but they were based on abstract speculative reasoning.

The Qur’an invited people to look and see. It argued on the evidence of such natural phenomena as sun, moon, day, night, rain fall, seasons, differences of colours and tongues. This ignited a spirit of inquiry which led to the discovery of inductive method in research. The Qur’an cites the example of Prophet Abraham who asked for an empirical evidence for life after death. Authors argue that God has used the experimental method to establish validity of metaphysical truths. It shows that for physical reality, it would be still more preferable to hold on to this method.

Therefore, in Islamic economics, inductive method is only a continuation of the tradition set by Muslims in the past. But it has been argued that it is not possible to derive any scientific conclusions merely by inductive methods.

It is this difference between the outlook and the values of the members of two different societies that makes economics a normative science. It is due to the normative nature of the discipline of economics that this paper argues for defining and establishing the micro foundations of Islamic Economics implying that the theories and behavioural assumptions of the conventional economic theory of the west are not relevant to Islamic society.

Not only that the conventional economic theory is incompatible with the Islamic society but its micro foundations are being challenged from within as well.

Every economic system is based on certain philosophic foundations. It is these foundations which generate the behaviour of the economic agents as well as the institutions in the system; and hence effectively determine the micro foundations of that economy. The philosophic foundations of Islam’s approach to economics are fundamentally different from that of the other systems.

Economics and Ethics

Economics, in an extreme narrow sense, is a study not of man in general but of economic man. To be more specific, it is a study of rational economic man. The rational economic man is an abstract shadowy being who is a self-seeking individualist and who will maximize ruthlessly to get what he wants. He counts every cost, insists on every reward, one who is incapable of uncalculating love and devoid of any sense of inner identity. It is this concept of the economic man that has brought discredit to the science of economics.

The attack on economics is really an assault on its calculatedness. The unpalatable description of economics as a dismal science is thus partly due to the economist’s vision of the rational economic man. To be sure, rational economic man is not an actual man, or is he a pure fiction. He is perhaps best described as a caricature of the real man. Are economists to be blamed for this?

All men are not alike in all respects, nor are they alike at all times or in all circumstances. Reaction to external stimuli therefore varies considerably between individuals at any given time and between times for any given individual. Each man carries in his personality a highly differentiated product and it is these inherent differences which render the task of the economist extremely difficult. The economist is therefore compelled to make assumptions about the object of his study and the rational economic man is simply the product of this process.

Economics has been made “neutral” by extricating it from all ethical values. To be ‘scientific’ in his enquiry, the economist takes pains to avoid value judgments, and inter personal and inter temporal comparisons.

A human behaviour in an Islamic society cannot be adequately explained without reference to the Islamic ethics which govern it. In an Islamic system, ethics and economics are not only compatible but also inseparable. For, Islam is not just a religion. It projects a complete way of life. A human behaviour in an Islamic society cannot be adequately explained without reference to the Islamic ethics which govern it. The Islamic man of course is very different from the economic man as he is understood in modern times. The Islamic man draws upon his moral resources and acts in accordance with ultimate ethical values, whereas the economic man indulges in his preferences motivated by self-interest. But, the Islamic man is no less rational than the economic man. For, he is consistent in his economic pursuit in harmony with Islamic perception of human existence and mission in life, to which he wholeheartedly subscribes. Rationality, to repeat, does not consist in choosing the ends.

The Economic Order of Islam

Economics and religion have long been kept in water-tight compartments so that economists and theologians could hardly see eye to eye. Man has learned to lead a dual existence, secular and spiritual, neatly divorced from each other. There is no room for such a “dualism” in Islam.

Material shortages, economic misery and social suffering arise out of man’s mismanagement of God-given bounties. It is man who inflicts injuries upon himself by deviating away from the right path as laid down by the Qur’an and the Hadith. It is then no wonder that economics, by denying itself the spiritualizing influence of religion, has come to be described aptly as a “dismal science” in modern times!

If the presence of want is a painful experience and if the satisfaction of it yields pleasure by removing the pain, the ultimate end that man seeks would be a state of wantlessness. For, wantlessness is an attribute of God; He indeed is wantless. It follows that maximum satisfaction that man seeks is only a means to an end and not an end in itself. Man attempts to reach the state of wantlessness by his maximizing behaviour, but in vain.

The act of satisfying wants is really an act of submission to the wanting mind (nafs-ul-ammara). To go on satisfying wants as and when they emerge is to pamper the commanding mind. Man thus fails to reach a state of wantlessness which he strives for. This means that maximizing satisfaction is not the best way of attaining the state of wantlessness. Another way of getting rid of the pain of want is to kill it. The act of satisfying only gives a temporary relief whereas the act of killing it provides a permanent solution to the problem of want.

The process of killing or annihilating wants as and when they arise is by no means easy. It needs a powerful will to offset the mastery of the mind over the body. And, a powerful will can only be developed through constant mental discipline. In the final analysis, it is a process of purification of the soul. By the process of killing or exterminating wants, man ultimately triumphs over the wanting mind and reaches the ideal state of wantlessness, a static state in which perfect happiness prevails.

Overall, it is a very enlightening book giving insights on how to approach development of Islamic economics in order to bring valuable insights in Islamic economics in an analytical way while also being fully cognizant of the values, norms and teachings of Islamic philosophy and Shari’ah.