Flaws of Modern Economics
- Social Sciences are not objective
- Contrary to the idea of “science”, modern social sciences are not objective, and are not ethically neutral.
- The “laws of economics” are not on par with the “laws of physics”.
- Scarcity
- This was in conflict with Fazlullah – the bounty and generosity of Allah, often mentioned in the Quran. The 2nd Generation, trained in capitalist economists, accepted scarcity as an objective fact and reality, and sought to re-interpret the Quran to accommodate this turnabout.
- Utility maximization
- The pursuit of pleasure is the goal of all rational behavior – was rejected by the 1st Generation, but accepted by the 2nd Generation.
- Greed
- Human beings are naturally generous and cooperative, but Economic theory teaches us to be selfish and greedy.
- Maximize Pleasure
- Human beings care for others and managers of firms feel social responsibility, but economic theory teaches us to maximize pleasure and profits.
- Loss of faith in Christianity led to the search in Europe for alternative models for organizing personal and social behavior. If there is no God and Judgment, then it is “rational” to maximize pleasure on this earth.
Utility Maximization: Deceived by the claim that utility maximization was a “scientific law”, universally valid for all rational human being in all societies, 2nd Gen IE attempted to harmonize this claim with Islamic teachings. The Quran (3:92) exhorts us to “spend that which you love, for the sake of Allah” in order to achieve the greatest good (Birr). Giving away that which we love most is obviously going to MINIMIZE utility, in the economic sense. As Quran (9:24) explains clearly:
Say: If it be that your fathers, your sons, your brothers, your mates, or your kindred; the wealth that ye have gained; the commerce in which ye fear a decline: or the dwellings in which ye delight – are dearer to you than Allah, or His Messenger, or the striving in His cause;- then wait until Allah brings about His decision: and Allah guides not the rebellious.
Conflicts with Islam: It should be obvious that this message is dramatically in conflict with the economic theory that the goal of life for all (rational) human beings is to maximize the pleasure they obtain from consumption of goods and services. Instead of outright rejection of E-rationality and the religion of utility maximization, 2nd Gen IE looked for ways to incorporate these concepts within an Islamic framework by modifying concepts of “rationality”, “maximization”, and “utility”, to match Islamic ideas. But this is like an attempt to harmonize fire and water – it is impossible to accept both of two view which are directly opposed to each other. For a more detailed discussion of many dimensions of conflicts between Economics and Islamic concepts, see my paper on “Islam vs Economics”. One of the central reasons for the failure of 2nd Gen IE was the failure to recognize the revolutionary differences between Islamic ideals, and the secular modern thought embodied in modern Economics.
Four Revolutionary Islamic Teachings: 2nd Gen thinking that IE is a modification of capitalism automatically implies that Islamic teaching do not have any revolutionary potential. This is in conflict with history, which shows how these teaching transformed ignorant and backwards Bedouin into world leaders, and launched a civilization which enlighted the world for a thousand years (see: What the World Lost Due to the Decline of Islamic Civilization). Nonetheless, it is true that Islam came as a stranger, and has become a stranger. A Western education teaches Muslims to admire the accomplishments of the Western civilization, and leaves him in the dark about the revolutionary ideals of Islam. The 4th section of my paper on “The Crisis in Islamic Economics” explains some of these ideas, and shows that they are just as powerful and revolutionary today as they were 14 centuries ago (see: Islamic Teachings: Still Revolutionary After 1440 years). In fact, there are so many revolutionary teachings of Islam that it is impossible to encapsulate or summarize them in a few words – these must be experience, lived, and demonstrated by building functional societies which work on these principles. For indicative purposes, the paper picks out four dimensions along which Islamic teachings offer us a radically different perspective. These are listed below:
Material Progress => Human Development
Greed => Generosity.
Competition => Cooperation
Individualism + Hedonism => Social Responsibility.
We briefly explain these four dimensions of conflict between ideals of Islam and modern Economics below.
1: Human Development: Ever since “The Wealth of Nations”, modern economics has made our individual and social goals to be the pursuit of wealth. Modern nations engage in collective efforts to maximize GDP per capita, without realizing the tremendous harms and damage created by this senseless pursuit. Islam teaches us that every human being is born with infinite potential, and the goal of our lives is to struggle to realize the potential for excellence within each soul. Our collective goal as a society should be to enable every individual to reach his maximum potential. This Islamic vision of “human development” leads to very different ways to think about organization of economic activities. For more details, see “Is Development the Accumulation of Wealth? Islamic Views”.
2: Generosity: Modern economics takes greed as axiomatic. It is assumed that evolution has shaped us to put our personal interests above those of the society. This assumption is dramatically in conflict with the reality of human behavior. Human beings often make great sacrifices for others, and for the social good. There is a huge economic literature on “altruism” which seeks to explain “generosity” as a manifestation of long run selfish interests. Recent developments in evolutionary theory show that generosity and cooperation are built into our natures. These traits are far more helpful for survival of societies than the early Darwinist assumptions of selfishness and cut-throat competition. Islamic teachings, aligned with human nature built into us by our Creator, say that we are generous by nature, but can be trained to become selfish. Whereas economics wrongly assumes that man is selfish (and 2nd Gen IE agrees), a revolutionary Islamic Economics could be built on the foundation that man is inherently generous. This leads to many new ideas for economic institutions, such as the “Gift Economy”. This is currently being researched within an Islamic framework (see The Islamic Gift Economy), and also by many secular authors (see, for example, The Gift Economy & The Maternal Roots of the Gift Economy).
3: Cooperation: Misunderstanding evolution led economists to believe that competition is the state of nature. This creates efficient firms, and stronger individuals. Evolutionary biologists have now reversed these findings. See, for example, David Sloan Wilson’s seven principles of cooperative behavior. These principles are strongly aligned with Islamic teachings. Instead of 2nd Gen efforts to fit competition into Islam, we need to show how Islam provides us with working models of cooperation and generosity, built into our institutional structures of Waqf and Takaful. This can guide us, and provide the way forward to solutions to pressing problems facing mankind today. These problems require cooperative solutions, but current economic models cannot conceive of the possibility of cooperative behavior. For more details, see “Islamic Economics: A Survey of the Literature”.
4: Social Responsibility: The idea that we are all brothers and sisters, sons and daughters of Adam and Hawwa (AS), leads to conceptualizing all of humanity as one family. This means that we are responsible to take care of each other. This sense of responsibility is embodied in the Islamic concept of “Farz-e-Kifaya”, the collective responsibilities of society. Among these is the necessity of taking care of basic needs of all members of the society. The central economic concern of an Islamic society would be to make sure that all members are provided for, in terms of housing, clothing, food, education, and healthcare. This differs radically from the concern for maximization of GDP, currently top priority in nearly all Islamic countries. Unfortunately, 2nd Gen IE has also gone along with this call for pursuit of wealth, under the misconception that this is the best way to fight poverty. A radical alternative, aligned with Islamic views, was proposed by Mahbubul Haq: “We were taught to take care of our GDP so that we may take care of our poverty. Let us reverse it; let us take care of our poverty such that we may take care of our GDP.” For more details, see The Human Development Revolution, and Hunger as the Primary Economic Problem.
Concluding Remarks: The second generation of Islamic Economists abandoned the revolutionary ideals of the first generation, and sought an evolutionary strategy, to modify capitalist institutions and bring them in conformity with Islam. We have shown that capitalism and Islam are diametrically opposed to each other on many dimensions. We cannot gradually change economic institutions founded on the basis of individualism, hedonism, competition, and selfishness, to create a society founded on generosity, cooperation, social development, and spirituality. The path is still open to us to go back to the revolutionary ideals of the first generation, and rebuild economics on the radically different foundational principles provided to us by Islam.
