Assoc. Prof. Dr. Mohd Nahar Mohd Arshad

Department of Economics

Kulliyyah of Economics and Management Sciences

International Islamic University Malaysia

Introduction

The economic study of religion encompasses two distinct areas: the economics of religion (EoR) and religious economics (RE). This distinction is crucial for understanding the role of Islamic economic research (IER).

The economics of religion, is descriptive in nature, focusing on existing realities. It employs modern economic tools to analyse religious behaviour and institutions, treating religion as a variable that influences socio-economic outcomes. In contrast, religious economics is more normative. It concerns ideal states. It utilizes theological principles to promote and criticize the economic policies.

Islamic economics is fundamentally a normative field, dedicated to the in-depth study of the normative principles outlined in the Qur’an and the Sunna (religious economics). In its empirical research, it probes into the economic behaviours and values of Muslims. As a result, it extensively utilizes economic tools to comprehend Muslim behaviour, integrating the economics of religion as one method of exploration. 

In reconciling normative (what should be) and positive (what is) economics, the discipline also emphasizes facilitating the transition from the current state to an ideal one, aiming to transform ‘what is’ into ‘what should be’. This agenda is central to Islamic economics, as it is to religious economics.

The origins of this dichotomy (EoR and RE) trace back to the very foundations of Western sociology. The integration of economic reasoning into the study of religion gained prominence with the German sociologist Max Weber.

In 1905, he published his seminal paper, The Protestant Ethic and the Spirit of Capitalism, where he argued that religious culture has a significant impact on economic outcomes. Weber identified specific theological concepts, such as ‘The Calling’ and Predestination, which create a psychological impetus to work diligently and achieve success. This drive inadvertently fostered the ‘Spirit of Capitalism’. Essentially, Weber’s work demonstrates how faith can influence markets and the economy, which runs counter to secular ideology.

After a period of dormancy, the field experienced a significant resurgence in the late 1990s, largely driven by the work of Laurence R. Iannaccone. His research firmly established the economics of religion as a rigorous discipline by applying rational choice theory to religious groups and analysing concepts such as free-riding and strict behavioural codes.

This era introduced sophisticated analytical tools, which, however, came with specific philosophical assumptions. These assumptions eventually led to significant friction when applied in Islamic contexts.

Epistemic Conflicts and the Instrument of Analysis

These historical developments present significant epistemic challenges for Muslim economists. A fundamental critique questions the very distinction between economics of religion and religious economics. Scholars contend that this distinction is rooted in a Western epistemic error, which embraces the dichotomy between ‘positive’ and ‘normative’ economics.

This division originates from European secularism and is further complicated by the fallacy of the Humean Guillotine (one cannot logically derive a moral imperative or prescriptive statement about what ‘ought’ to be done from a purely factual or descriptive statement about what ‘is’).

This concept holds no place in Islamic epistemology, where revelation offers the normative values that humanity must pursue for advancement. Facts and values are intertwined; one cannot grasp ‘what is’ without understanding ‘what should be’. Yet, labelling Islamic economics simply as ‘religious economics’ diminishes the field, potentially portraying it as a religious study rather than a legitimate, rigorous scientific alternative.

However, this categorization sparks a crucial debate about whether Islamic economists can and should integrate Western classifications without compromising Islamic epistemology. This epistemic conflict manifests most acutely in the methodology of analysis.

For example, a central concept in the modern resurgence is the ‘Religious Marketplace’ model. This model applies market logic to faith. It views religious groups as firms and believers as customers. However, this approach faces severe criticism from diverse scholars. It reduces believers to consumers. It treats salvation as a product. This commodifies faith. It interprets acts of worship through rational choice along with cost-benefit analysis. This represents capitalist encroachment into the sacred sphere.

Islamic economists typically reject this model. This rejection creates a significant methodological dilemma.  Scholars often reject the philosophy of the ‘religious marketplace’. Yet, they often desire the analytical precision of the ‘economics of religion’.

The mathematical tools of this field, such as utility maximization were built specifically for the marketplace model. This leads to the secular science paradox, where researchers must determine if they can separate the tools from their underlying ideology.

The struggle to define a sovereign methodology creates further confusion about the role of Islamic sciences. A significant confusion exists among Islamic economists regarding the nature of their discipline. For example, there is still an ongoing debate whether Islamic economics is a science or a doctrine. This confusion arises from the entanglement of descriptive and normative discourses.

This issue extends to the integration of usul al-fiqh. Some scholars argue that treating usul al-fiqh as an economic methodology creates a confusing hybrid. They assert that legal deduction differs fundamentally from social scientific analysis.

A counter-argument posits that usul al-fiqh offers a sovereign methodology. It incorporates concepts like maslahah (public interest) together with urf (custom). These are inherently sociological tools. Dismissing usul al-fiqh implies that only Western econometrics can explain the reality. This view reduces Islamic economics to a follower of secular trends. The challenge here is how to adapt legal tools for social science without losing their scientific precision.

The Limits of Materialism and the Empirical Imperative

Scholars must acknowledge that even the most rigorous economic analysis faces inherent boundaries when applied to Islam. Critiques of standard economic analysis often identify a deep materialist bias. Economic tools rely on observable data. They cannot measure metaphysical realities, such as barakah (divine blessing). For Muslim economists, the Unseen (al-ghayb) is the ultimate reality.

For example, the Qur’an states that Allah destroys riba (interest) and gives increase for sadaqah (charity) (Qur’an 2:276). It also promises that ‘If you are grateful, I will surely increase you [in favour]’ (Qur’an 14:7). These are absolute truths for believers. They exist beyond the scope of statistical validation. The inability of economic tools to measure barakah does not invalidate the concept. It instead highlights the deficiency of the tools. Therefore, one must recognize that empirical economics offers only a partial view of reality.

However, recognizing these spiritual limits does not absolve the researcher from the duty of rigorous observation. Selected empirical study remains necessary. This necessity arises from the pursuit of Truth (haqq). For example, scholars should measure the effectiveness of zakat in alleviating poverty. This helps refine policy implementation. It ensures that the divine command produces the intended justice in the material world.

Improving the economics of religion based on the methodology of Islamic economics is vital for the discipline’s development and defence. For example, the study by Filipe Campante and David Yanagizawa-Drott, in 2015, argues that Ramadan fasting can reduce economic growth through temporary labour supply decline. Such findings present a challenge that Islamic economists must address with rigorous, principled scholarship.

This calls for creating independent Islamic indicators and developing a scientific framework rooted in faith values, rather than reacting to Western perspectives. The future of Islamic economics lies in a balanced methodology combining empirical precision with moral vision inspired by Islamic epistemology. Through this synthesis, Islamic economics can establish itself as a robust discipline ready to meet contemporary challenges and traditional aspirations.