THE INCOMPATIBILITY OF NEOCLASSICAL ECONOMICS AND ISLAMIC PSYCHO ECONOMICS
Neoclassical economics has been the dominant economic worldview since the late 19 th century and is the backbone of modern capitalism. It can be defined as an economic philosophy that broadly focuses on supply and demand as the primary forces behind the production, pricing, and consumption of goods and services. 9 More importantly, neoclassical economics is methodologically individualistic, assuming that self-interest drives economic behavior and generally excludes the interests of others. Economic individualism rests on the primacy of the individual and the corollary principle of the sanctity of private property. These core economic values were derived from John Locke, Adam Smith, and other economic philosophers. Locke argued that ownership of property is grounded in ownership of the self, and since each individual owns himself, each individual has a natural right to his own labor and therefore has a right to the property received or produced in exchange for this labor. Smith posited that the best way to maximize a person’s happiness was to allow him to freely act in his own self-interest. Neoclassical economics should be seen as not merely an economic theory, but a value system and worldview. The core belief that underlies neoclassical economics is hedonic psychology, as one of the most influential neoclassical thinkers, William Stanley Jevons, stated that “Pleasure and pain are undoubtedly the ultimate objects of the Calculus of Economics. To satisfy our wants to the utmost with the least effort … in other words, to maximize pleasure, is the problem of Economics.” Furthermore, he conceptualized that “utility [arising from any commodity] must be considered as measured by, or even as actually identical with, the addition made to a person’s happiness.” Is there a problem with the neoclassical philosophy of wealth? Is it a reflection of reality and compatible with Islamic values?
Neoclassical economics rests on three unrealistic assumptions that human beings possess: (1) unbounded rationality; (2) unbounded willpower; (3) unbounded selfishness. Many of the leading secular leaders in decision-making sciences, including Herbert Simon and behavioral economists, have been quite critical of these assumptions, arguing that humans make decisions with “bounded rationality,” often make poor decisions due to a lack of self-control, and often make decisions that are selfless. Collectively, the foundations and assumptions underlying neoclassical economics are substantially different from and antithetical to Islamic psychoeconomics. I use the term psychoeconomics to emphasize the psychospiritual guidance that underlies the economic mindset of a Muslim. First, from the Islamic psychoeconomics perspective, satisfaction of needs and wants, or maximizing carnal pleasure, cannot be the ultimate goal driving economic activity. Even if we were to accept that maximizing pleasure is the ultimate goal driving economic activity, then we must redefine pleasure as being that which is pleasing to Allah. Second, the Islamic notion of ownership of the self is completely different, as Allah owns our souls and by extension our wealth. Allah says in Sūrat al-Tawbah, “Indeed, Allah has purchased from the believers their lives and their properties [in exchange] for Paradise….” (Quran 9:111) Third, economic individualism is far from the Islamic notions of public welfare and communal rights. The fact that zakah gives others a right over a portion of our wealth and withholding charity is considered blameworthy and a cause of our destruction negates the compatibility between Islam and economic individualism. Allah says in Sūrat al-Baqarah, “And spend in the way of Allah and do not throw [yourselves] with your [own] hands into destruction [by refraining from giving]. And do good; indeed, Allah loves the doers of good.” (Quran 2: 195)
Thus, through a detailed look at the Qur’an and Sunnah, we can extract and appreciate the psychospiritual underpinnings that optimize financial mindsets and behavior. The remainder of this paper highlights selected Islamic microeconomic principles that inculcate a psychoeconomically healthy mindset. I argue that these principles are intended to foster self-contentment, motivate philanthropic behavior, and lead to God-consciousness. The holistic nature of Islamic psychoeconomics guidance helps govern one’s relationship with oneself, with creation, and with the Creator. As capitalism, intellectually supported by neoclassical economics, is the economic worldview dominating public discourse, the need to reorient Muslims towards an Islamic worldview of wealth is essential for personal and societal well-being. (“Neoclassical economics extols the virtues of capitalism and suggests policies that help the capitalists increase their command over the goods and services produced. To be precise, it shows that a capitalist society, if left to itself, will automatically bring about full employment of all the workers and full utilization of the productive capacities of all the production units (i.e., the organizations that produce goods and services. These organizations are referred to as firms in economics). It also shows that a capitalist economy on its own will produce all the different goods and services in optimal quantities and distribute the produced goods and services among people in an optimal manner. Hence, it recommends the policy of free market or laissez-faire. Under this policy, the government should not interfere with the economic activities of individuals and firms and allow a capitalist economy to operate on its own.” See Ghosh and Ghosh, Introduction to Economics.)
By Osman Umarji
Comments
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.