Aaliah Rafee

Introduction

Contemporary mainstream economics, with its physics-inspired mathematical formalism, has long been critiqued for its inability to predict crises or account for human complexity.

As Dr. Salman Ahmed Shaikh argues, the reductionism of DSGE models—which treat economies as closed, deterministic systems akin to celestial mechanics—fails to capture the moral, social, and spiritual dimensions of human behaviour. Yet, Islamic Economics (IE), while positioning itself as a holistic alternative, often adopts the very tools of this neoclassical tradition: optimization models, equilibrium analysis, and econometric testing.

This raises a pressing dilemma: If mainstream economics’ foundations are epistemologically flawed, can Islamic Economics truly transcend reductionism while borrowing its analytical toolkit?

This article interrogates this tension, proposing a path forward that balances pragmatism with epistemological fidelity.

1. Cracked Foundations? The Paradox of Borrowed Tools

Islamic Economics’ critique of mainstream axioms—homo economicus, hyper-individualism, and value-neutral efficiency—is well-documented. Yet, its reliance on neoclassical tools like marginal utility analysis or econometric modelling risks replicating the very reductionism it rejects. For instance, econometric studies of halal consumer behaviour often reduce ethical choices to utility curves, inadvertently framing piety as a “preference” rather than a divine imperative. Similarly, game-theoretic models of zakat distribution, while useful for simulating cooperation, may tacitly normalize self-interest as a behavioural default.

This tension, however, need not be irreconcilable. As Dr. Shaikh clarifies, tools are “neutral” if divorced from their underlying vision. Econometrics, for example, can describe poverty trends in Muslim-majority regions without endorsing materialism, just as Bayesian statistics might quantify trust in mudarabah contracts without assuming moral relativism. The key lies in rigorous conceptual filtering: using tools descriptively (to analyse what is) while rejecting their normative assumptions (about what ought to be).

The challenge, however, is avoiding “conceptual smuggling.” When IE adopts terms like “scarcity” or “rationality,” it risks importing their neoclassical baggage—e.g., framing scarcity as an ontological reality rather than a test from Allah SWT (“And He will provide for you from sources you could never imagine” [Quran 65:3]). Tools must thus be subordinated to IE’s teleology: not efficiency for growth’s sake, but justice as a divine mandate.

2. Distinctive Epistemology: Pluralism Over Purism

Islamic Economics’ true distinctiveness lies not in rejecting mainstream tools, but in reorienting them toward maqasid al-Shari’ah (the higher objectives of Islamic law). For normative analysis (what ought to be), sui generis methodologies are essential.

Agent-Based Modelling (ABM), for instance, could simulate economies where agents adhere to Islamic constraints—prohibiting riba (interest), minimizing gharar (excessive uncertainty), and prioritizing redistributive mechanisms like zakat. Unlike DSGE models, ABM accommodates heterogeneous agents, moral learning, and systemic feedback—aligning with IE’s vision of humans as morally accountable actors.

Critically, as Dr. Shaikh notes, tools need not be “perfectly holistic” to be valid. A model analysing sukuk (Islamic bonds) need not quantify spiritual rewards; it suffices that it avoids contradicting Islamic axioms (e.g., by excluding leverage). This pluralistic approach allows IE to engage mainstream economics without dilution.

Yet, pluralism has limits. The replication of conventional banking practices under “Islamic” labels—such as tawarruq-based loans that mimic interest—exposes the dangers of tool-first thinking. Here, the problem is not the tool (contract structuring), but the absence of a maqasid-driven vision. As IE evolves, its test will be whether it can leverage tools like ABM or network analysis to redefine economic success—prioritizing stability, equity, and spiritual well-being over GDP growth.

3. Empirical Validation: Crisis Resilience as a Test Case

The 2008 financial crisis, which conventional models failed to predict, became a litmus test for alternative frameworks. Islamic finance, with its prohibition of speculative debt and asset-backed financing, weathered the storm comparatively well: Sharīʿah-compliant equity indices (e.g., Dow Jones Islamic Market) fell 30% less than conventional counterparts, while Islamic banks reported lower default rates due to risk-sharing (mudarabah) models.

Post-crisis studies, including IMF working papers, confirmed these institutions’ systemic resilience—a vindication of IE’s ethical constraints. However, this resilience stems not from tools, but from axioms. Conventional econometrics, for instance, may not fully explain why asset-backed financing stabilizes economies; it merely observes correlations.

IE’s task is to foreground the why: the divine wisdom (hikmah) behind riba’s prohibition, or the communal responsibility encoded in zakat. Empirical success thus becomes a bridge for normative argumentation—a way to demonstrate that ethical constraints are not just spiritually sound, but empirically robust.

Conclusion: Pragmatism and Ambition

Islamic Economics stands at a crossroads. To analyse what is, it must pragmatically adapt mainstream tools—provided they are stripped of reductionist assumptions. To articulate what ought to be, however, it must dare to innovate: developing tawhid-centric models that reflect humanity’s role as Allah’s stewards (khalifah).

This dual approach rejects both uncritical integration and isolationist purism. As Dr. Shaikh advocates, pluralistic methodology allows IE to engage the mainstream while retaining its soul. The goal is not to mimic physics-envying economics, but to redefine economics itself—as a science of human flourishing, anchored in divine guidance.

In the words of the Quran, “Do they not contemplate the Kingdom of the heavens and the earth?” (7:185). Islamic Economics, at its best, is this contemplation enacted—a discipline where tools serve truth, not the other way around.

References

Askari, H., Iqbal, Z., & Mirakhor, A. (2014). Introduction to Islamic Economics: Theory and Application. John Wiley & Sons.

Čihák, M., & Hesse, H. (2010). Islamic Banks and Financial Stability: An Empirical Analysis (IMF Working Paper No. 10/87). International Monetary Fund.

S&P Dow Jones Indices. (2009). Dow Jones Islamic Market Indexes annual review

Shaikh, S. A. (2020). Influence of Physics in Contemporary Mainstream Economics. Islamic Economics Project.