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The Meta-Principles of Modern Economics

This article discusses the foundational concepts that underpin contemporary economic thought, highlighting the importance of ethical considerations in shaping economic policies.
"So where then are you going?" - [Al Qu'ran: 81:26]

The Islamic tradition, like most major religious traditions places a great deal of emphasis on intention and direction. The aforementioned Qu'ranic query harkens the reader to constantly re-visit his motives and assumptions in view of the larger context and direction that he/she is pursuing. This interplay between means and ends is one of vital importance when examining the role of any social science, with economics being no exception. Far from exclusively being an Islamic proposition, the noted economist E.F.Schumacher, alluded to this in his book, 'Small is Beautiful', wherein he highlighted that all economics is derived from a larger instructive paradigm of meta-principles. It was Schumacher's position that a viable alternative to what he considered the materialist excesses of modern economics would best be served by a faith based paradigm. Though he highlighted Buddhism as his illustrative example in the landmark fourth chapter of his book, he was keen to state that, " The choice of Buddhism for this purpose is purely incidental; the teachings of Christianity, Islam or Judaism could have been used just as well." (1989, p.55)

The economic system that Schumacher and others were keen to replace, had its foundational principles very much in place in the centuries preceding him. In the context of this paper, it would be pertinent to examine the historical genealogies of these principles as they would be directly relevant to any ongoing discussion concerning Islamic Economics; inclusive of its subset Islamic Finance and their subsequent direction. This is because for any successful "Islamisization of knowledge" it is vital that the philosophical foundations underpinning that science be recast into the Islamic metaphysical framework. As Al Attas (1984) says concerning this,

"We do affirm that religion is in harmony with science. But this does not mean that religion is in harmony with modern scientific methodology and philosophy of science. Since there is no science that is free of value, we must intelligently investigate and study the values and judgments that are inherent in, or aligned to, the presuppositions and interpretations of modern science. We must not indifferently and uncritically accept each new scientific or philosophical theory without first understanding its implication and testing the validity of values that go along with the theory." (1984, p.114)

Intellectual History of Economics

While much can be written about this, the meta-principles of Modern Economics are arguably best traced back to post enlightenment era thought arising from Western Europe. The enlightenment period and its subsequent general direction, referred to by some[1] as 'technicalistic progress[2]', was a path that Western Europe was to adopt from the 17th century onwards. In general, this involved a transition from religious to secular thought with attempts constantly made to identify 'rational' grounds on which to base social, political and economic structures.

The great 'Western Transmutation', referred to as such by Hodgson (1974), was marked primarily by a shift in societal structurethrough previous 'traditional' societies morphing into 'rational'[3] ones. Scholars such as Foucault (2005) have noted this period as when 'man'[4] first emerges within the field of western knowledge. Others such as Eisenstein (2007) argue that it was the 17th century that saw the definitive articulation of the 'Scientific and Technological Program'[5] that was to further define the paradigm of the 'separation of man' henceforth. According to Eisenstein (2007), "the slow accumulation of technology and empirical science through the Renaissance period gradually eroded nature's forbidding immensity, bringing us to a point where...an assault on its mysteries became conceivable."

The 'assault' was a process by which the ancient maxim[6] of Protagoras (500 B.C) received renewed vigor. With the 17th century enlightenment era heralding the arrival of 'rational man' and at a later date his economic counterpart ' homo economicus', it was not long before this period would be referred to by Nietzsche as the 'Death of God[7]'.

Though the process would involve various stages, it was arguably the great names of the Scientific Revolution-Galileo, Newton, Descartes, Leibniz, Bacon - who in redefining motion, matter, energy and force would go on to provide the conceptual underpinnings that would help set into place what Eisenstein (2007) refers to as the 'objectification of nature'. This process would go on to dominate practically all mainstream fields of academic knowledge (with economics being no exception) for the next three centuries.

In summary, mainly reliant on the narratives of Eisenstein (2007) and Nasr (2002, 2007), the key elements of post enlightenment humanistic knowledge could be primarily alluded to as being the following:

(a) Emphasis on the secular [8]

(b) Mechanization of the world with a subsequent emphasis on determinism [9]

(c) Emphasis on rationalism and empiricism with a subsequent exiling of qualitative experience from the definition of empirical reality [10]

(d) Separatism and dualism with subsequent emphasis of reductionism towards nature [11]

(e) A culmination of the foregoing features as a quest for absolute control of nature [12]

As a result of the above, intellectual discipline in Western Europe was increasingly sought to be defined through secular, value-neutral and materialist perspectives, with further prestige given to rational and empirical scientific knowledge as being distinguished from other forms. Of this, as mentioned, special importance was accorded to Newtonian physics mainly because in reductionist order it was arguably the most precise. Just as using a single law of motion for particles Newton was able to present a unified treatment of a large number of seemingly unrelated phenomena; similar efforts were made to use reductionist laws that would explain economic behaviour.

Historians of economic thought such as Mirowski (1984) maintain that the founders of neoclassical economic theory imported the mono-utility approach from nineteenth century physics in an attempt to impose a "unity of analytical tools" between the disciplines. He maintains that:

"Neoclassical economic theory is bowdlerized nineteenth century physics. ... Present research techniques may be favoured because they were appropriated from physics. ... neoclassicism was not 'simultaneously discovered' because it was 'true,' instead, the timing of its genesis is explained by the timing of the energetics revolution in physics, and by the fact that scientifically trained individuals in different Western European countries at that time had access to the same body of knowledge and techniques." (1984, p. 377).

Later authors, such as Olson (1990) also document the prestige accorded to Newtonian physics and the subsequent effort to model social sciences along similar lines.

The intent of founders of modern neoclassical economics, such as Leon Walras in stating that "the pure theory of economics is a science which resembles the physico-mathematical sciences in every respect" (p.363), is evidently consistent with Mirowski's thesis . As such, neoclassical economics as it subsequently emerged began to strip itself free of the normative moral value judgements previously emphasized by Aristotelian, Judeo-Christian thought culminating in its formal identification as a 'scientific' discipline after the publication of Alfred Marshall's treatise, Principles of Economics, in 1890. (Schumpeter, 1951, p.21).

With a continual emphasis on equating economics with more empirical sciences such as Physics, key concepts of conventional economics emerged in the form of rationality[13], maximization of utility[14], positivism[15], laissez-faire[16], econometrics[17] and the 'invisible-hand' of market forces[18]. Despite on-going debate, these concepts largely provide the meta-principles that support the modern market economy today.

In summary, when we review the epistemological foundations of modern neoclassical economics and its subsequent core meta-principles it is perhaps not co-incidental that Schumacher (1989) sought to contrast it with those embodied by faith principles. Within the rationality of (neoclassical) economic theory and the Benthamite "utility" of money the process of counting the consumption of natural resources as income is but 'rational'. As Eisenstein says, "In terms of conventional economics, it may actually be in an individual's rational self-interest to engage in activities that render the earth uninhabitable.[19]" This may be potentially true on the collective level as well: as Diwany (2003, p.13) and Eisenstein illustrate using the exponential nature of future cash flow discounting," it may be more in our "rational self-interest" to liquidate all natural capital right now -- cash in the earth -- than to preserve it for future generations. After all, the net present value of an eternal annual cash flow of one trillion dollars is only some twenty trillion dollars (at a 5% discount rate). Economically speaking, it would be more rational to destroy the planet in ten years while generating income of $100 trillion, than to settle for a sustainable level of $3 trillion a year forever [20]."

Ecological Degradation & Poverty

Strangely enough the effects of destroying the planet appears to be of relatively little concern within mainstream economic 'rationale' as can be discerned from statements such as those of Yale professor William Nordhaus who proclaims, "Agriculture, the part of the economy that is sensitive to climate change, accounts for just three percent of national output. That means there is no way to get a very large effect on the US economy." Likewise the Oxford economist Wilfred Beckerman is reported to have said: "Even if net output of agriculture fell by 50 percent by the end of the next century, this is only a 1.5 per cent cut in GNP [21]"

It is evident that despite claiming to be amoral and free from normative assumptions; neoclassical economic theory posits idealizations with regards to human welfare and happiness, "perfect" competition and the consumptive capacity of people, much of which is on the opposite side of the narrative to faith positions. Its record is none too impressive either, since it has been associated with the disintegration of family life and ideologically blamed as a failure to bring peace of mind and inner happiness (Easterlin, 2001, 1995 and 1974). Scholars such as Oswald (1997), Blanchflower and Oswald (2000), Diener and Oshi (2000), Kenny (1999), Lane (2001), Douthwaite (1992, 1999) and Layard (2005) have all documented how vast increases in wealth in Western societies have failed to increase contentment, satisfaction and a sense of wellbeing. Henry George in his landmark book, Progress and Poverty, condemned the resultant contrast between wealth and poverty brought about by neoclassical economics, when he wrote, "So long as all the increased wealth which modern progress brings goes but to build great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent" (1955, p. 10). In more recent times, Nobel-laureate Amartya Sen has argued that "the distancing of economics from ethics has impoverished welfare economics and also weakened the basis of a good deal of descriptive and predictive economics", and that economics "can be made more productive by paying greater and more explicit attention to ethical considerations that shaped human behaviour and judgment" (1987, pp. 78-79).

Ethico-Moral Economics

In contrast, on the opposite side of the spectrum most faiths emphasize a Divine element towards nature, connecting the economic dimension to higher, wider dimensions and placing the acquisition of material wealth in the service of communal belonging and spiritual advancement, none of which quite fits in within the 'rationale' of homo economicus. In fairness, perhaps Schumacher's allusion to a formal faith (in Buddhism) was encompassing of a broader context of what he considered 'Sacred[22]'. The recent financial crisis and various social movements that have arisen in its wake have in a large part been calling for a return to a sacred dimension of economics as embodied in the works of Charles Eisenstein (2011) and Eileen Workman[23], neither of whom advocate a particular religion or creed in their works, but who advocate a state of being with regards to the world that would be consistent with Schumacher's definition of 'Traditional Wisdom[24]' and inconsistent with the rationale of Homo economicus[25].

Change as a paradigm can only be effective when one is aware of what exactly needs to be changed. Although this paper has deliberately focused on economics, at a higher level economics itself arises out of a normative assumption with regards to the world. As Eisenstein (2007, 2011) arguably illustrates in his book, Sacred Economics, the current paradigm arises out of a paradigm of separation, reductionism and control in keeping with the dominant meta-principles of the supportive framework (post enlightenment scientific humanism) from which it arose.

The need for change

For those working in the field of Islamic Economics or Islamic Finance, it is imperative that any proposed viable reformation of the current economic system involve a desire to look within the proverbial shadows of implicit assumptions we may hold with regards to the nature of the world, ourselves and money. Such reflection would need to take place at the level of the collective as well as the individual, for there is a dire need for practitioners in the industry to engage in an analysis that is holistic (by which is meant a structural analysis of means and ends, direction etc.) and not one that is reductionist. This is the way Scholars engaged with the Sharia (Islamic Law) from the very inception of Islamic Jurisprudence construed things. With the Sharia said to represent God's Mercy and Justice on the earth, it is debatable as to they would evaluate the current Islamic Finance industry. In that regards it would perhaps be apt to conclude with the words of Ibn al-Qayyim who once wrote:

"The principles and fundamentals of the Shari'a concerning the injunctions and the good of humankind in this life and the next are all based on justice, mercy, the good of man, and wisdom. Every situation in which justice succumbs to tyranny, mercy to cruelty, goodness to corruption, wisdom to foolishness, has nothing in common with the Sharia, even if it is the result of an allegorical interpretation [tawill]. For the Sharia is the justice of God among His servants, the mercy of God among His creatures, His shadow upon His earth, and His wisdom, which is both the proof of His own existence and the best witness to the authenticity of His Prophet."

[Ilam al-muwaqqiin an rabb al-alamin, vol. 3, Cairo, p. I, Ibn al-Qayyim Jawziyya]

This piece has a Creative Commons Copyright, the author can be contacted at yusuf.jha@gmail.com

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