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a comparative study of economics from self-interest to `god s interest waleed a.j addas international islamic university malaysia

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published by international islamic university malaysia press first edition 2008 © international islamic university malaysia press all rights reserved no part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise without any prior written permission from the publisher perpustakaan negara malaysia cataloguing-in-publication data waleed a.j addas methodology of economics secular vs islamic waleed a.j addas includes index bibliography pg 137 isbn 978-983-3855-28-5 1 economics 2 economics development i title 331.132 printed by ampang press sdn bhd 6 jalan 6/91 taman shamelin perkasa batu 3½ jalan cheras 56100 kuala lumpur malaysia tel 603-92849448 fax 603-92849105 e-mail ampress@streamyx.com

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contents preface acknowledgements chapter 1 chapter 2 chapter 3 chapter 4 chapter 5 chapter 6 chapter 7 chapter 8 introduction literature on methodology an overview worldview differences sources of knowledge values and economics the question of methods economics its nature and significance concluding remarks vii ix 1 17 45 61 73 87 101 123 137 147 bibliography index v

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note on cover design islam has succeeded by overwhelming its predecessors a church turned into a mosque in the same vein as the methodology of economics from an islamic perspectives encompasses the secular methodology and does not let it go out of its sight second the demolishing of the church symbolizes the collapse of the received view in the philosophy of science today islam in my opinion has all the answers to today s social and economic problems moreover within the courtyard of the mosque lies the dome of the tresaury-another example that shows how in islamic economics money and wealth creation are an integral part of the religion the principles that inspired this cover design derive to a large extent from the insights of my daughters and i also wish to record my gratitude to mrs karim allaoui of cambridge university who has helped in proof-reading and final checking on the colours etc.

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preface this book is based on the thesis that i submitted in august 2006 to the international islamic university malaysia in partial fulfillment of the requirement for the award of the phd degree in economics it was a difficult topic but this reality dawned on me only after i had already crossed the point of no return i found the area hazy and controversial in mainstream economics in the case of islamic economics the situation was even worse methodology was invariably confused with a research design or work plan the subject in a formal form did not even exist whatever was available in the literature was part of discussions on islamic economics or shari ah issues usually the discussion was of a `touch and go nature the writers were seldom found coming to grips with real issues in the area let alone reaching any worthwhile conclusions much confusion and controversy in the methodology of economics essentially centered on the efficacy of criteria rules and procedures that have to be observed for evaluating the performance of economics ­ secular or islamic in fact until today there has hardly been a common view or a clear understanding among the islamic scholars as to whether islamic economics itself has a separate existence independent of its mainstream counterpart let alone having a methodology to assess and oversee it in this dark and un-chartered area i have tried to show that islamic economics is both epistemologically `linked to and is also `independent of secular economics to be precise methodology of islamic economics is and would broadly be the application of the shari ah norms to mainstream dispensation with a view to assessing their compatibility with the islamic faith and the position of the shari ah on the many and divergent micro and macro economic issues we shall find in the following discussion that the subject under the name `islamic economics is presently no more than the result of applying the islamic rules and injunctions i.e islamic fiqh to secular economics islamic economics is not yet contrary to what some scholars would want us to believe a discipline that replaces secular economics vii

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methodology of economics secular vs islamic in islamic educational institutions worldwide curricula and teaching programs are dominated ­ even if out of necessity ­ by course structures and reading materials appropriate for western social setting and values designed as they are on the assumption of an impersonal market environment the islamization of knowledge program in economics follows what one may call a `step-by-step approach for developing the subject this de facto means that there has been no attempt to replace the mainstream concepts and theories completely with the pure islamic ones the initial plan has been just to modify and integrate them with what islam would allow or could modify to fall in line with the shari ah tenets when the subject itself was in a state of infancy one need not wonder if its methodology were all the more found confused and patchy however it is this messy state of methodology that lends reason and significance to the present work it fills a gap however imperfect it might look i am aware of its limitations the main issue relevant to our discussion in this exploration was whether reality adjusts to doctrine or that doctrine conforms to the reality or one finds a mutual interaction between the two in the field of economics what methodological affinities or divergences if any are between them also we attempted to see whether prediction could or should be the hallmark of a theory in social sciences as is currently believed in economics at least or the tractability of events their analysis and human prescription were of greater importance it will be satisfying if the readers could find this small work light bearing on these and related issues viii

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acknowledgements praise be to allah subhanahu wata ala but for whose blessings and guidance i could not have undertaken or completed this humble work among others my heartfelt gratitude goes to my main supervisor professor dr zubair hasan this work bears on almost every page the imprints of his enlightening lectures on islamic economics i attended during my phd course work program his scholarly views on methodological issues scattered over his numerous writings referred to in the work have been of immense value while writing the thesis i owe much to his patience and paternal attitude in correcting for improvement several drafts of the work including the editorial assistance he extended in formatting it for publication i am indebted to him for all the knowledge wisdom and experience he shared with me during my studies at the iium that process of sharing encouragement and support continues unabated thanks are also due to professor dr mohammad aslam haneef and associate professor dr muhammad arif zakaullah members of the supervisory committee for their help at different stages of writing the dissertation the work would not have been what it is but for their constructive criticism and useful suggestions i am grateful for their unreserved encouragement that helped me much in completing the research on time in addition my thanks and profound respect goes to the iium administration especially to professor dato dr azmi omar the deputy rector for academic affairs for his unwavering assistance and support during my stay as a postgraduate student at the iium the great seat of learning in the muslim world last but not least i express my sincere gratitude to my wife tahani and daughters who spared me time from family duties over the years i was working on my thesis also i cannot forget my loving parents their unceasing prayers i am sure contributed to my successes in life including the present one may allah shower his blessings on them all here and in the hereafter ameen waleed a.j addas jeddah ix march 2007

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dedication i dedicate this work to my loving mother mufida umwaleed my guiding father ahmad and my caring wife tahani and also to all my four daughters asmaa walaa nidaa and tala

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chapter 1 a introduction they said o shu aib does your salat prayer command that we give up what our fathers used to worship or that we give up doing what we like with our wealth verily you are the forbearer right minded they said it sarcastically surat hud verse 87 disciplined knowledge is the result of man s cognitive explorations the exploration is invariably directed to find ways for making life more comfortable and rewarding including the spiritual solace it is an ongoing process that continually adds to the existing stock of human knowledge with the passage of time the tree of knowledge grew into distinct branches essentially because of the limitations of the human mind to absorb the fast expanding totality of the phenomenon the roots of the tree ­ belief reason and convention ­ though have hardly changed they continue to serve basically the above stated purpose in all its ramifications methodology role and nature every branch of knowledge deals with the wider issue of human wellbeing from a particular angle and seeks to resolve issues as they emerge in achieving its agreed goals it is in the nature of things that there ought 1

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methodology of economics secular vs islamic to be a way to know and discover how efficaciously a branch of knowledge has developed and is developing to address the goals it exists to achieve.1 the way to assess that is shown by the philosophy of the branch of knowledge in question including economics ­ secular or islamic.2 organized knowledge including that of economics is usually called `science and is built for achieving its objectives on some perception of rationality the issues concerning science are epistemic and what is called the methodology of the subject e.g economics deals with them methodology is the theory of theories in the field of economics it refers to the process economists use to authenticate the knowledge about economic phenomena it is therefore an important constituent of the philosophy of science interestingly in the context of a discipline or subject3 it often is a moot point whether methodology is to be considered a part of the subject itself or as independent of it in case of economics both views prevail some even treat it as a halfway house between the two 4 however we feel that to keep them separate may help avoid confusion and improve understanding of their respective roles thus for us methodology of economics looks at the discipline of economics from outside the discipline with a view to evaluating its performance even as there is intimate interaction between the two the relationship between the two ­ economics and its methodology ­ is of the same sort as between fiqh and usul-ul-fiqh.5 in evaluating the performance of economics its methodology is both a descriptive as well as a prescriptive discipline it explains what economists are doing how well they are doing it and suggests what they should be doing in view of the a priori objectives it is at this point that instead of overseeing the achievement of given objectives the objectives themselves tend to become a moot point in the methodological discourse.6 recent years have witnessed increased interest in the study of methodological issues in economics.7 the number of books and journal articles on the subject has multiplied quite fast over the past two decades or so it is argued that this renewed and increased interest in the subject has been aroused by a variety of factors for instance there is a growing feeling that economies are not performing as well as they used to one finds poverty amidst plenty involuntary unemployment co-exists with high rates of inflation and there is hardly a reliable solution to the recurring 2

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introduction local economic depressions or even regional financial crisis not to mention the current clash between increasing economic liberalization on the one hand and the anxiety to preserving the sovereignty of nations on the other these anomalies have raised the doubt if the economists are indeed working in the way the `philosophy of economics would require they should.8 another reason of this late revival of interest in methodology in the field of economics is that economists in their effort to impart a positivist air of the natural sciences to economics had tended to cut the subject off from philosophy that raised moral and ethical questions regarding human objectives and behavior the isolation became almost complete with the publication of lionel robbins nature and significance of economic science.9 friedman closed the circle altogether it is only recently that the moral and social aspects of human conduct are being emphasized in economics hence the resurgence of interest in its philosophy ours being an islamic context we shall focus more on the normative aspect of the subject despite some recent improvement in the understanding of the methodological issues as we unfold them in the following chapters the confusion in certain areas especially concerning the distinction between methodology and methods still lingers in the literature.10 while methods per se essentially fall within the ambit of the subject of economics methodology is a subject within its own right and evaluation of the methods of economics is one of its important tasks islamic economics too is not altogether free of confusion on this fundamental point for example chapra 1996 p 36 rightly quotes from cave the definition of method as the specification of steps which must be taken in a given order to achieve a given end the nature of the steps and the details of their specification depend on the end sought and on the variety of ways of achieving it 11 however this does not lead us to the rules and criteria that methodology provides us for the acceptance and rejection of scientific research programs in a situation where the general public doubts economics and some economists doubt even themselves it becomes all the more important to understand and clarify the position the confusion and controversy on methodological issues in secular economics makes it imperative to look at 3

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methodology of economics secular vs islamic the issues involved from the viewpoint of islamic economics as well more so in a comparative vein some of the important issues methodology deals with are the purpose of economic inquiry the sources of knowledge relevant to it the subject matter and the scope of its inquiry the limits to the application of knowledge and the decisions about the appropriate structure for erecting economic theories and/or testing econometric models.12 we shall return to such topics in some details later methodology also studies the relationship between theoretical concepts and warranted conclusions about the real economic world.13 it examines the ways in which economists derive their theories the ways they seek to justify them and the reasons they offer for preferring one theory to another its primary task is to evolve sets of criteria for theory appraisal traditionally it consists of a broad set of criteria rules and procedures that the philosophers of the subject have evolved over time to examine the nature scope and performance of their subject the criteria address such questions as the demarcation between science and non-science the scope and application of economic theories the degree of correspondence between theory and reality and how is this degree to be corroborated and tested.14 much confusion and controversy in the methodology of economics essentially center on the efficacy of these criteria rules and procedures.15 in addition methodology helps explain the nature of the theories behind economic behavior and human action it also aims at prescribing acceptable methods and techniques of economic inquiry in order to enlarge the stock of knowledge methodology also defines the assumptions that govern human behavior and as such it is an implicit statement on the nature of economic man methodology is part of the theory of knowledge and the two have an interactive relationship the latter is a vast complex area and a discussion of its details here is perhaps uncalled for suffice it to say that methodology helps in charting the course for a universal theory of knowledge that separates the `good or useful branches of knowledge from the `bad and useless ones in the tree it is much occupied with separating the wheat from the chaff as such it stresses on the importance of defining the bases or roots for theoretical economics it 4

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introduction continually investigates whether what we claim to know in economics is really true the treatment of the subject of methodology in mainstream economics is in a state of flux confusion and controversy dominates the scene the situation in islamic economics is even worse in fact until today there has hardly been a common view or a clear understanding among the muslim scholars as to whether islamic economics has a separate existence i.e if the subject really is independent of mainstream economics kuran a leading critic of islamic economics concluded after reviewing some of the books in the area that islamic economics does not offer a comprehensive framework for a modern economy it fails to provide a well-defined and operational method of analysis 16 interestingly khan 2002 quotes from one of siddiqi s earlier writings supportive of his position the craving for a de novo discipline of islamic economics is ill-conceived no such thing is possible 17 in islamic institutions the world over curricula and teaching programs are mostly dominated ­ out of necessity ­ by courses structures and reading materials appropriate for a western social setting and values designed as they are on the assumption of an impersonal market environment the islamization of knowledge process has in economics adopted what one may call a step-by-step approach this de facto means that there has not been an attempt to entirely replace the mainstream concepts and theories with the pure islamic ones but modify and integrate them with what islam would allow 18 part of the confusion on the methodological issues in islamic economics can presumably be attributed to this sort of gradual and graded approach the term methodology has often been used as no more than a plan for action to develop islamic economics unlike its secular counterpart methodology is not seen by most of the muslim economists independent of islamic economics meant for overseeing and evaluating the performance of the subject from outside the subject hasan 1998 p 3 we shall find in the following discussion that the subject under the name `islamic economics is presently no more than the result of applying the islamic rules and injunctions i.e islamic fiqh 19 to secular economics islamic economics is not yet contrary to what some scholars would want us to believe a discipline that replaces secular economics 5

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