Schools of Thoughts in Methodology of Islamic Economics

EKISPEDIA.COM - There are many methodological approaches put forward by esteemed economists in Islamic economics. These approaches include the circular economy approach, moral economy approach, institutional approach, assimilative approach and pure transformative approach.

The circular economy approach takes its inspiration from the recent literature on environmental sustainability. It is based on the idea that resource utilization shall avoid waste and ensure recycling for sustainability. In its vision and aims, it is not a concept unique to Islamic economics.

Potentially, Islamic economics can offer a set of principles and values to engender commitment, responsibility and moderation in using resources without excess and waste among Muslims in particular.

Islamic finance also has alternate institutions to mobilize funds through financial markets via Sukuk and institutions, such as Islamic banking and Waqf.

The moral economy approach favours dualism in policy and institutional design of products and organizations whereby the moral aspect is imbued with the commercial or economic aspects. Again, it is similar in vision to social economics to lay more or equal emphasis on issues of morality, fairness and equity.

The institutional approach takes a more practical stance to develop products and structures to deliver those products through markets. Islamic banking and financial institutions have come about by the efforts in that direction. However, many critics argue that this approach is at best an effort to assimilate historically evolved institutions in Muslim society without much originality and economic distinction.

In its methodological approach to develop and devise an operational structure of institutions, it relies on Fiqh. This brand of literature treats Islamic economics as a branch of applied Fiqh in economic and financial matters.

The aimed and acclaimed outcome of such research is to come up with consistent rulings for Muslims to abide by Islamic Shari’ah in economics and finance matters. It hesitates to indulge in analysis from economics and other perspectives. It also looks down upon, undermines or ignores the analytical works and pursuits in Islamic economics beyond their aimed jurisprudential focus unless such analyses help in defence of practical rulings or in putting forward criticism of conventional finance in particular and capitalism in general.

The assimilative approach takes the mainstream economics methodological framework and attempts to embed Islamic concepts in theoretical models through assumptions and choice variables. It is contended that utility in the Islamic framework is not just limited to hedonistic happiness as in Bentham’s Utilitarian framework.

The Islamic concept of Falah encompasses meaningful success in the material and spiritual sense, both in this worldly life and hereafter. However, it has limited success in embedding Islamic precepts in the mathematical models which are conceived and designed to analyse the choice behaviour of agents in markets.

The integrative approach separates economic and non-economic choices and market versus beyond market choices and resource allocation. It does not worry about losing the opportunity of aggregation and general equilibrium analysis. It lays more emphasis on allowing room for analysis of economic behaviour and its impact in determining market outcomes.

This approach does not try to embed spiritual and pro-social choices in objective functions. It acknowledges that doing it will mean that such choices will give unqualified sovereignty to the agent. Therefore, resource allocation of time, wealth and income to social causes, volunteering and charities is deducted from the resource budget without analysing it in the objective function that is only suited to analyse choice behaviour in markets.

The ‘distinctive’ approach calls for a distinct methodological framework. ‘Transformative’ approach in the distinctive school almost disregards the need for descriptive and positive analysis and lays complete focus on transformation. For making its case, it suggests discarding all theoretical edifices of mainstream neoclassical economics and adopts a rather preaching style way of transformation of behaviour through Islamic-founded education. Many other authors emphasize transformation, but this school of thought focuses entirely on transformation.

All these approaches are neither entirely correct nor incorrect. They are also not completely mutually exclusive. What differentiates them is the difference in priority and focus. (*)

Writers: Salman Ahmed Shaikh

Source: IEP