Economics and the Tawhidic paradigm
By: Fahid Fayaz Darangay/Dr. Aakif Fairooze
The fictitious ‘economic man’ has been universally accepted in the theorizing of conventional economics. His objective is to maximize his benefits subject to the feasibility constraints. He is expected to calculate the benefits he could reap and the costs he has to incur. He chooses only those actions which will yield the maximum benefits for himself. He does not consider it his responsibility to cater for the need or welfare of the others. He is a technocrat in the economists’ sense. He is not expected to have any feelings, prejudice or system of values, which would influence his decisions. Yet, in reality, a man is still a man whatever form he takes. He still has a certain behavioral patterns governed by some values. However, the economists prefer to pretend that ‘economic man’ does not behave differently at different dates, locations and situations except if the variables in his utility and cost functions change. He is presumed to behave in a manner the economists want him to behave. As such, there exists some pattern of behavior even for the ‘economic man’.
On the other hand, Islam considers such assumptions invalid for these reasons. Firstly, man by his very nature changes his behavior according to his feelings, needs, prejudices, moods, etc. Islam requires man to be consistent and rational, which can be attained by following strictly all Islamic values. His decisions may differ at different times, even if the economic conditions are the same. Secondly, the Tawhidic principle, which governs his behavior, is the only consistent and amicable principle which can lead to achieve his objective of seeking the pleasure of Allah. Tawhid itself, among others, emphasizes “equality, brotherhood, justice and benevolence, truthfulness and honesty, compassion and kindness, priority of the social good over that of the individual, acceptance of the principle of rule of consent and decision through mutual consultation, the sanctity of the family, and that sex relations shall be based on contracts, emphasis on co-operative living and recognition of the right of the society to private wealth”. These principles, although not exhaustive, are quite sufficient to provide a different perspective towards the analysis of man in his economic pursuits.
Thirdly, Islam as a complete way of life, seeks to conscientiously unify the current schism between ethics that a different economic behavior consonant with the Tawhidic requirements will be brought about. Under these circumstances, the following changes may be spelt out.
First, the character of the ‘economic man’ will be completely different from those argued so far. His utility-maximizing behavior can no longer be constrained by the feasibility frontier alone. He now has to consider the second constraint, that of ethical allowability. This is obvious since Islam explicitly prohibits consumption of goods which are harmful. His utility from consuming such goods which are prohibited should be negative, since all prohibited goods are harmful. As such, utility maximization should be subjected not only to his budget (feasibility) constraint but also the allowability constraint. The resultant commodity space will have to be redefined to exclude all goods considered unlawful by Islam. In fact this is also true in the case of goods for production.
Second, the redefined ‘contracted’ commodity space does not imply that the desire of an individual to consume commodities will not be “insatiable”. Firstly, as is apparent in the preceding paragraph, the utility derived from consuming the prohibited goods is negative because they have been considered harmful.
“….eat of what is on earth, lawful and good…’ [Al-Baqarah (2):168]
Indeed, for this reason the total utility derivable from the apparent ‘contracted’ commodity space should be higher. Secondly, the Quranic rejoinder:
“….eat and drink but waste not by excess’ [Al-A’raaf (7):31] implies that the commodity space for an Islamic society has been contracted to avoid undue waste. Extravagance and waste are frowned upon by Islam, and hence one who strictly adheres to this injunction will derive additional utility.
Third, from the discussion above, one can infer that the commodity space of an Islamic man is different from that of an economic man in the sense that the utility is not only derived from his physical consumption of goods, but more importantly, through his adherence to Islamic injunctions. His utility function, the arguments of the function, as well as his calculus change dramatically. As Monzer Kahf suggested, his time horizon extends infinitely.
Fourth, a competitive economy in an Islamic setting will also change tremendously. This is so because of the Islamic ethical biases concerning resource ownership. That all wealth belongs to Allah and that man, as His servant and vicegerent, holds in trust whatever is on earth, will obviously change the character of competitive equilibrium. The manner of production will change substantially because of the sense of accountability involved. In addition, “the ‘contents’ of the efficiency locus will change since the commodity mix, coming out of the interaction of consumers and producers, is bound to be different in an Islamic economy”.
Fifth, the economic man can no longer continue to be selfish. He has to take into consideration the consumption and production behaviours of others in the society. This is contrary to one of the basic assumptions of the neo-classical utility theory, that utility functions are independent. Such an assumption actually implies that one’s utility is never affected by other people’s consumption, even of the same goods. This assumption is not acceptable in Islam. The concern for others, brotherhood concept and the like, will definitely affect the utility of any individual in the society. For instance, one actually finds utility or satisfaction by giving the needy a helping hand. Hence the interdependence of utility functions and production functions must be explicitly taken into account. This means that one must consider the situations of others as Islam treats simultaneously as an individual as well as collective entity.
Sixth, the Tawhidic concept of human freedom is consistent with a substantial role of the state in an Islamic economy. On the contrary, this fact is against the basic philosophy of pure and perfect competition, which is based on the dominance and superiority of the ‘Invisible Hand’.
“It is interesting to note that much of the mystery surrounding Monstesquieu’s Invisible Hand – an invisible force reconciling effortlessly the pursuit of selfish interest with social welfare, which is maximized under competitive equilibrium – largely disappears in an Islamic economy. This is because the unitary (Tawhidic) Islamic philosophy ‘conditions’ individual preferences in such a way that they no longer conflict with public welfare. This conditioning comes about not unknowingly or accidently, but as a result of a conscious regulation of man’s economic activities, specifying not only need but also the means for achieving them”. (The Role of Ethics in Economics and Business by Prof. Datuk Dr. Syed Othman Alhabshi).
– Fahid Fayaz Darangay is Honours in Economics from Aligarh Muslim University and is currently pursuing Masters in Financial Economics from Madras School of Economics, Chennai, Tamil Nadu. Dr. Aakif Fairooze, PhD Mathematics from Jamia Millia Islamia, is a JKPSC lecturer.