The Future of Economics

An Islamic Perspective

M. Umer Chapra

• Publisher: The Islamic Foundation
• Year: 2016
• ISBN:
  9780860376569
• Topic: Business
• Subtopic: Islamic Banking & Finance
• Index: Business

This profound book is a powerful yet balanced critique of mainstream economics that makes a forceful plea for taking economics out of its secular and occident-centred cocoon. It presents an innovative and formidable case to re-link economics with moral and egalitarian concerns so as to harness the discipline in the service of humanity.

M. Umer Chapra is ranked amongst the Top 50 Global Leaders in Islamic economics (ISLAMICA 500, 2015) and has been awarded with two prestigious awards for his contributions to the field: Islamic Development Bank Award for Islamic Economics (1989) and the King Faisal International Prize for Islamic Studies (1989).

CHAPTER 1

Conventional Economics

There are growing numbers who suspect that all is not well in the house economics has built.

(Mark Blaug)¹

Man is a moral animal and no political or economic order can long survive except on a moral base.

(Nigel Lawson)²

THE TOWERING ACHIEVEMENT

Conventional economics has undoubtedly made immense progress, particularly after World War II. If one were to evaluate its contribution in terms of the scientific sophistication that it has attained so far, it would perhaps get full marks. Its contribution far outshines that made during any other comparable period in human history. However, while human beings have an interest in the sophistication of a discipline, their greater interest lies in the help that it can provide in solving their problems and realizing the goals that they have set before themselves. So how does conventional economics fare on this criterion?

Conventional economics has put before itself two different sets of goals. One of these is what may be termed positive, and relates to the realization of ‘efficiency’ and ‘equity’ in the allocation and distribution of scarce resources. The other is what may be called normative, and is expressed in terms of the universally-desired socio-economic goals of need-fulfilment, full employment, optimum rate of economic growth, equitable distribution of income and wealth, economic stability, and ecological balance, all of which, in addition to social harmony and the absence of anomie are, in varying degrees, considered indispensable for actualizing human well-being. Both of these set goals aim at serving the individual as well as the social interest in conformity with the worldview that underlies each of them. Nevertheless, the first set has been called positive because of the claim that efficiency and equity can be determined without value judgements, while the second has been called normative because it reflects, to a great extent, society’s vision of ‘what ought to be’.

Whether or not these positive and normative goals are mutually consistent depends on how efficiency and equity are defined. This will become clear as this discussion progresses. It is difficult to say whether conventional economics has been able to realize its positive goals because of the difficulty of defining and measuring both efficiency and equity in a dynamic economy. However, it is generally agreed that even rich industrial countries have been unable to realize all their normative goals simultaneously in spite of the substantial resources at their disposal. If some of these goals are realized, it is at the expense of others. The available evidence seems to suggest that the failure has gradually become more and more pronounced with the passage of time. So what could the reason for this failure be?

CONFLICT BETWEEN GOALS AND WORLDVIEW

There are two possible reasons for this failure: firstly, the inability of conventional economics to suggest appropriate mechanisms for filtering, motivation and restructuring; and secondly, the inability of the society concerned to apply these mechanisms effectively. The question of application, however, acquires significance only if one were satisfied that the suggested mechanisms are appropriate for realizing the normative goals. Is it possible that the mechanisms suggested by conventional economics are not in harmony with its goals? Within the perspective of this book, the answer to this question is in the affirmative.

The reason for this may perhaps be that the goals and the mechanisms of conventional economics have been derived from two different worldviews. The normative goals are the byproduct of a religious worldview that emphasizes the role of belief in God, the accountability of human beings before Him, human brotherhood, and moral values in the allocation and distribution of resources. Even though an effort is made to justify these goals through the use of an economic rationale, their essential origin and justification lies in the religious worldview. The mechanisms for filtering, motivation and restructuring are, however, by-products of the secularist worldview of the Enlightenment movement. It may not, thus, be possible to realize humanitarian goals without having equally humanitarian mechanisms.

Initially, when the secularist paradigm was primarily confined to a small group of academics, the conflict between the religious and the scientific models did not have a significant impact on the economy and society. Religious values continued to dominate and override the impact of the secularist paradigm on the mechanisms employed. However, with the gradual proliferation of the secularist values of the Enlightenment worldview through secular education and the mass media, and the inability of disintegrating families to provide a proper moral upbringing for new generations so as to prevent the decline in their moral orientation, the conflict has tended to become more widespread.

THE WORLDVIEW

The Enlightenment movement of the seventeenth and eighteenth centuries considered all the revealed truths of religion as “simply figments of the imagination, non-existent, indeed at the bottom priestly inventions designed to keep men ignorant of the ways of Reason and Nature”.³ It denied any role for Revelation in the management of human affairs and placed great emphasis on the ability and power of reason to distinguish right from wrong and to order all aspects of human life. It, thus, deprived society of the morally-oriented filtering, motivating and restructuring mechanisms, which have the potential to effectively complement the role of the market in the allocation and distribution of resources.

However, if Revelation is not accepted as the criterion for ‘right’ and ‘wrong’, ‘desirable’ and ‘undesirable’, ‘just’ and ‘unjust’, then there has to be some other way of determining these. Utilitarianism’s hedonist approach was offered as an alternative. Right and wrong were to be determined on the basis of the measurable criteria of ‘pleasure’ and ‘pain’.⁴ This approach paved the way for the introduction of the philosophies of social Darwinism, materialism and determinism in economics and other Social Sciences.

Social Darwinism was an extension of the principles of the survival of the fittest and the natural selection of Darwinism to human society. This inadvertently provided tacit justification for the concept of ‘might is right’ in the ordering of human relations and of holding the poor and the downtrodden as totally responsible themselves for their own poverty and misery. The rich and the powerful could thus pacify their consciences and exonerate themselves from any sense of social or moral obligation for the removal of the inadequacies and injustices of the system.

Materialism made wealth, bodily gratifications, and sensuous pleasures the objectives of human endeavour. This served to provide the foundation for today’s consumer culture which has made continually increasing consumption a virtue and which has led to the multiplication of human wants beyond the ability of available resources to satisfy. Given the ethos of this culture, a non-controversial proposition of conventional economics is that more is invariably better than less, and that, accordingly, increased production, greater material wealth, and larger consumption are necessarily good.⁵ It was not appreciated that material goals may sometimes need to be sacrificed in human society so as to reduce the non-economic costs of greater production and consumption and so as to realize greater equity and social harmony.

Determinism implied that human beings had little control over their own behaviour. Instead, actions were primarily seen as mechanical and automatic responses to external stimuli as in animals (Watson and Skinner), unconscious mental states beyond the individual’s conscious control (Freud), or social and economic conflict (Marx). Determinism, thus, did not merely negate the distinctiveness and complexity of the human self, it also led, in step with social Darwinism, to the repudiation of moral responsibility in individual behaviour. Since the circumstances that controlled the individual’s behaviour were beyond his or her control, the rich or the powerful could not be blamed for what happened to the poor and the downtrodden. This in sharp contrast to the religious worldview which considers all human beings responsible for their own actions and, hence, accountable before God.

The Enlightenment worldview did not immediately lead to either moral decline or to an erosion in the humanitarian values of the religious worldview. It did, however, succeed in driving a wedge between the scientific and the religious models and in giving rise to a number of concepts which are in conflict with humanitarian goals. The three most important concepts which form the pillars of the conventional economics paradigm, are: rational economic man, positivism, and Say’s Law. The meanings and implications of these for economics are briefly discussed below.

Rational Economic Man

Conventional economics is deeply committed to the assumption that individual behaviour is rational. Whilst there may not be any great difficulty in accepting this assumption, there is nevertheless a problem in defining rationality, and, indeed, there are a number of ways of so doing.⁶ However, once the normative goals of society have been specified, we may not be left with unlimited freedom to do this. Rational behaviour would then automatically become identified with behaviour that is conducive to the realization of these goals. It would then imply that an individual intelligently takes into account all the different factors, economic and non-economic, that affect the realization of these goals and, thereby, his as well as other people’s well-being.

Economics, however, did not do this. Taking into account the well-being of others would have implied constraints on individual behaviour. This did not fit into the secular paradigm of economics and had to be ruled out. Hence, in keeping with the social-Darwinist approach to economics, rationality was equated with the serving of self-interest. This is clear from the depiction of ‘rational economic man’ by practically all writers. They “interpret the drive of self-interest in man as the moral equivalent of the force of gravity in nature”.⁷ Edgeworth clearly expressed this idea by saying that “the first principle of economics is that every agent is activated only by self-interest”.⁸ Within this framework, society came to be conceptualized as a mere collection of individuals united through ties of self-interest.

It is, however, possible to serve even self-interest in different ways, economic as well as non-economic, pecuniary as well as non-pecuniary. But, in keeping with its materialist orientation, economics ruled out all non-economic aspects of self-interest and primarily equated rationality with the ‘economic’. Even the ‘economic’ was confined solely to the pecuniary. Economics created the imaginary concept of ‘economic man’, whose “one and only one social responsibility is to increase his profit”.⁹ Economics, thus, primarily concerned itself with the behaviour of rational economic man who was motivated only by the serving of self-interest by maximizing his wealth and consumption in whatever way he could. All other passions that bring human beings together, such as cooperation, compassion, brotherhood and altruism, whereby people strive for the well-being of others even when it hurts their immediate self-interest, were totally ignored. Thus, what the secularist trapping of economics did was to essentially make the serving of self-interest through the maximization of wealth and consumption the primary device for filtering, motivation and restructuring.

Positivism

The individual can also serve his self-interest within the constraints of a number of humanitarian goals, the realization of which is considered to be crucial for human well-being. This being the case, then both present and future generations as well as other earthly creatures that coexist with humans, together with material and non-material aspects of life may have to be given due attention. The freedom of the individual would, in this context, be only one of the goals. Once all the desired goals are recognized, then the most rational way to measure positivism may be to look at the progress made in the realization of not just one, but rather all these goals in accordance with their priority in human well-being. All factors that affect individual behaviour and have the potential to contribute to the well-being of all, may have to be taken into account, irrespective of whether they are economic or non-economic, public or private, moral or mundane. Moral and institutional factors complement the material factors that are taken into account by the market mechanism, and...