Islamic Political Economy/Moral Economy:

Methodological Issues

Lecture Delivered at
Islamic Finance Programme
Ecole de Management de Strasbourg
University of Strasbourg

Dr Mehmet Asutay
Durham Islamic Finance Programme
School of Government and International Affairs
Durham University
UK
mehmet.asutay@durham.ac.uk

17th - 18th March 2011

Methodology of Islamic Political Economy

CONCEPTS: ONTOLOGY/EPISTEMOLOGY; NORMATIVE/POSITIVE

Ontology deals with the nature of what is studied, or in other words, ontology is the science of being
qua being.
Methodology of science can not be separated from the human perspective view of the world
(worldview), among others, a view of where the origin of the universe, what meaning and purpose of
human life, such as what rights and responsibilities of individuals and communities against one
another (Chapra , 2001: 12).
Epistemology is about how the body of knowledge developed. In other words, discusses the scope
and limits of science.
The question that must be answered: Where the source of knowledge?; What is the nature of science?;
How to verify the truth?
Truth revelation dogmatic and absolute, so the role of revelation in the search for truth is very
important. However, we are required to place the truth of rational and empirical facts within the
framework of Islam as a whole. In fact, Islam regards the position of reasonable importance, to the
point that God's wrath against those who do not want to use reason (10:100).
Verificationism is a view which says that an idea can be said right when the discovered evidence
could support the idea.
Falsificationism is a view which says that an idea can be said right when non-existence of evidence
could refute the idea.
Falsificationism versus verificationism debate so far is still going on among Western economists.
Economic experts discuss Islam is not a lot of this debate because they are only at the level of
empiricism.
Meanwhile, epistemology in Islamic economics are even more extensive, including concepts or ideas
that are non-empirical (eg, about God, afterlife, etc.).
Masudul Alam Choudhury (1998) explaines that Islamic economic approach to using the
methodology shuratic individual process is replaced by a consensus of experts and market participants
in creating a balance of economic and market behavior.
Individualism, which is the basic idea of conventional economics, implies individual being self-
maximiser (utility)..
Positivism: A science is said to be positive when discussing something at the level of what it is (what
is), and normative when discussing something at the level of what should be (ought to).
In accordance with his duties, Islamic economics is not limited solely as a positive science or
normative nature.
Axiology discuss the purpose of organized science, or in other words, to what science has been
developed that will be used.
The purpose of Islamic economics is to achieve falah, or the happiness of the world hereafter, or
salvation. For the life of the world, falah contains three terms: survival, freedom from poverty, and
strength and honour. For the life hereafter, falah contains three terms: the eternal survival, welfare
immortal, eternal glory, and knowledge that is free from all ignorance.
Values are higher moral principles, or standards and norms of behaviour. They are ideals like
equality, freedom, goodness, justice, courage, patience, honesty etc. which are abstract terms with
different meanings and connotations in different societies, periods and places. "Values of Islam" is
therefore a vague phraseology which requires clear definition and interpretation. Islam is a theological
term in the sense of human submission to the Divine Will. What does Islam mean in reference to a
specific economic or political system of a given society? Values are ethical terms. There is the
problem of preference of one value over the other in a given society. Is efficiency more important
than equity? Must freedom be preferred to economic equality and justice? Is rationality a value?
Which type of rationality" is to be preferred?

M. Asutay 2 March 2011

Methodology of Islamic Political Economy

SOURCES OF KNOWLEDGE (Asad Zaman, 2009)

“Modern” Definition of Knowledge.

Knowledge is Objective:
This means that it does not vary from person to person and change depending on the
person. The same knowledge is valid for all. If something is true, then it is true for all
people at the same time, and valid regardless of whether anyone believes it or not.

Knowledge is External to the Observer:

This means that the objects of our knowledge exist independently of us in the real world.
They will not cease to exist if the person who knows them forgets about them. They
have an independent reality.

Knowledge is Verifiable by using observations and logic:

This means that if there is a dispute between two people about some element of
knowledge, then this dispute can be settled by reference to observations. If I say that the
Wall is Blue and you say that it is Red, it is possible to look at the Wall and determine
who is right or wrong.

Conventional Economic Theory is “Positive” Knowledge.

By Positive Knoweldge, we mean that it satisfies the criteria listed above for knowledge.
Western Economists claim that the material contained in conventional economics
textbooks qualifies as factual, objective, and empirically verifiable knowledge:

• Friedman (1953) states that “In short, positive economics is, or can be, an “objective”
science, in precisely the same sense as any of the physical sciences.”

• Lionel Robbins (1935) claims that “The propositions of economic theory, like all
scientific theory, are obviously deductions from a series of postulates. And the chief of
these postulates are all assumptions involving in some way simple and indisputable facts
of experience….”

• Samuelson and Nordhaus write [Economics 17th Ed. Page 8]: “Positive economics
describes the facts of an economy, while normative economics involves value
judgements

M. Asutay 3 March 2011

Methodology of Islamic Political Economy

DEFINING ISLAMIC ECONOMICS

The approach of Zaidan Abu al Makarim (1974) suggests a ten-point test to quality an ‘ilm.
These points include name, definition, subject and sources. Applying these criteria, al-
Makarim concludes that Islamic economics is certainly a science of its own, and he gives it
the name ‘science of economic justice’. For him, economics is “the science that deals with
wealth and its relation to man from the point of view of the realization of justice in all forms
of economic activities”.
"Islamic economics is the knowledge and application of injunctions and rules of the Shariah
that prevent injustice in the acquisition and disposal of material resources in order to provide
satisfaction to human beings and enable them to perform their obligation to Allah and the
society". He defines Shariah in terms of broad rules/values and laws. He explains that "the
principles which prevent injustice are contained in the Shariah. The Shariah comprises two
things: injunctions and rules. The first signify the do's and dont's in the Quran and the
Sunnah while the second are those set of principles which the Fuqaha have derived from the
first (injunctions)" (Hasanuz Zaman, 1984: 52).
Islamic economics "aims at the study of human falah achieved by organising the resources of
earth on the basis of cooperation and participation” (Akram Khan, 1984: 55).
"Islamic economics is the study of Muslim's behaviour who organises the resources which
are a trust, to achieve falah” (Arif, 1985: 97).
“Islamic economics as a "social science which studies the economic problems of a people
imbued with the values of Islam" (Mannan, 1986: 18).
“‘Islamic economics’ a system of economic policy guided by the Qur'an and Sunnah in facing
the economic problems. For him, the focus of Islamic economics is ‘the normative
interventionist policies’ made necessary by the greed of human beings. Hence, Islamic
economics becomes, for Tag el-Din, a tool to enlighten policy makers, and help them take
the right decisions. Consequently the analytical part of economics becomes a secondary
requirement, since one must know what ‘is’ in order to be able to suggest what rationally
‘ought to be’” (Seif el Din Tag el-Din, 1994).
“Islamic Economics is a social science which studies the economic problems of the people
who have the Islamic values” (Mannan, 1997: 19).
“Islamic Economics is the branch of science that helps to realize human welfare through the
allocation and distribution of resources which are scarce in accordance with maqasid”
(Chapra, 2000: 125).
“Thus, Islamic Economics has a different task with conventional economics. Duties in
addition to studying the reality of the behavior of economic agents, both domestic
producers, domestic consumers, and governments, also must formulate the concept of ideal
behavior according to Islamic teachings should be made by economic agents, as well as its
effects are possible for the economy. Concretely, this science in addition to explaining the
variables involved, which may cause a discrepancy between the real behavior with the ideal
behavior also served recommend appropriate strategies to guide the behavior of economic
agents to the ideal behavior can be realized” (Chapra, 2000: 127-128).
“Islamic economics identifies a study of human behaviour with regard to acquiring and using
resources for the satisfaction of necessities, needs and other desires. This study is based on
the assumptions of the Islamic paradigm, i.e. the Islamic outlook on life and humanity. It
studies the behaviour of human beings, on its own nature as created by God, regardless of
any ideological stance they may have adopted” (Kahf, 2004).

M. Asutay 4 March 2011

Methodology of Islamic Political Economy

RELATIONSHIP BETWEEN ECONOMICS AND ISLAM

Economic Assumptions Islamic Assumptions

Normative (5) Economic (3) Islamic normative (1) Islamic Normative
Assumptions normative assumptions normative Assumptions
assumptions assumptions
Descriptive (6) Economic (4) Islamic descriptive (2) Islamic Descriptive
Assumptions descriptive assumptions that are descriptive Assumptions
assumptions also economic assumptions
descriptive
assumptions

Islamic Normative Assumptions - Assumption Groups (1) and (3):

Majority of texts from the Qur’an and Sunnah relate to these two groups. This is due to
the fact that all Shari’ah ordinances and injunctions are normative assumptions in the
sense of being mandatory, desirable, abhorred and forbidden.
Group 3: are there any Islamic normative assumptions that are also endorsed by
economists?
Initially the answer might be no; as epistemologies and ontologies are different.
However, considering that policies and principles can be similar, it can be concluded that
Group 3 is relevant to Islamic as well as to modern economics.

Islamic Descriptive Assumptions – Assumption Groups (2) and (4):

These describe a reality, or indicate a relationship between variables or classify facts in a
specific manner.

Economic Descriptive Assumptions – Group 6:

Although economists hold divergent views, there are several descriptive assumptions on
which there is a consensus, such as the law of diminishing returns.

Economic Normative Assumptions: Group 5:

Economic normative assumptions that are mentioned in Sahari’ah texts, and which can
neither be deduced therefrom as they are values exclusive to economics.
These are normative assumptions and presumptions exclusive to modern economics,
those that do not have an Islamic basis.
This should be replaced by Group (3) to develop an economic formation within Islamic
paradigm.
Such an substitution lead to two forms of variables in the context of Group (6):
amending or correcting those assumptions founded on Group (5), and adding new
assumptions (or laying emphasis on assumptions which had not been appropriately
considered) derived from Group (3), from namely Islamic values and presumptions.
This can lead to the development of Islamic political economy.

Two Conclusions:
(1) Islam is a religion of guidance whose primary objective is to provide us with
normative assumptions either in the form of Shari’ah ordinances and injunctions, or
indicating a normative preference for one case over another. However, Islam also calls
our attention to variables and provides us with some descriptive assumptions that are
relevant to some of the sciences.
(2) Islam and economics share a common concern as indicated in the assumption groups
(3) and (4).

M. Asutay 5 March 2011

Methodology of Islamic Political Economy

RELATIONSHIP BETWEEN ISLAMIC ECONOMICS AND FIQH

(i) The basic difference between fiqh and Islamic economics is that the major objective
of fiqh is to arrive at normative assumptions that are essentially Shari’ah injunctions.

(ii) These normative assumptions constitute, in fact, the quasi totality of fiqh.

(iii) On the other hand, the major objective of Islamic economics (and of positive
economics as well) is to arrive at descriptive assumptions that identify realities and link
together economic phenomena.

(iv) Fiqh: the knowledge of the practical Shari’ah injunctions and the evidence cited in
their support. These range from the obligatory through the recommended, the
permissible, the reprehensible, and the forbidden.

(v) Since fiqh does not lack descriptive assumptions, economics and even conventional
economics/positive economics must rely on certain normative assumptions.

(vi) However, it may be useful to distinguish economics and fiqh in terms aim of the
knowledge for economists and fuqaha. Example: Monopoly.

(vii) Fiqh texts seeks evidence for the prohibition of monopoly, of what should not be
monopolized, the nature and conditions of forbidden monopoly, and the penalties to be
given to monopolizers.

(viii) Economists, on the other hand, aim at identifying the root causes of monopoly, its
types, its affects on the distribution of income, the way prices on monopoly markets
differ from those obtaining a competitive market, the difference in the quantity of goods
sold on one or the other etc.

(ix) Thus, economics focus on the descriptive aspect of the phenomenon, seeking to
identify its influencing factors and the relevant causal relationships, whereas fiqh looks
into its normative aspects, namely the ruling of Shari’ah thereon, and criteria for
permission and prohibition as regards all forms of the phenomenon.

(x) Thus, going back to the original question: is there a relationship between the function
of fiqh, which is to identify Shari’ah injunctions, and that of Islamic political economy,
which is to describe and interpret economic phenomena relevant to these Shari’ah
provisions?

(xi) Indeed, there is a relationship, as follows: One of the functions of Islamic political
economy is to bring out the economic wisdom behind the provision of the Shari’ah. In
other words, among its functions is the analysis of the economic significance of Shari’ah
provisions and their long and short-term consequences in economic life.

(xii) Example for this difference between the function of economics and that of fiqh
could be debt financing (riba an nasi’ah).

(xiii) Fuqaha (jurists) have dealt with this; and identified the Shari’ah provisions
indicating that the prohibition applies to any precondition on increase in borrowed
funds, regardless of the appellation given to such an increases (interest, commission,
compensation, etc.)

M. Asutay 6 March 2011

Methodology of Islamic Political Economy

Contemporary Muslims economists have researched the wisdom of the prohibition of

interest bearing loans and arrived at several important conclusions. Thus, interest-free
productive loans

(i) promotes economic stability in that it alleviates economics fluctuations to which

individual institutions and the economy as a whole are exposed. It is a proven fact
that interest rate financing sharpens these fluctuations;

(ii) ensures higher efficiency in the utlisation of resources, under specific conditions.

Thus, regarding the relationship between Islamic political economy and fiqh, Islamic
political economy has three functions:

(i) A function distinct from fiqh: This is the description and identification of facts,
discovery of the relationships and laws that link economic phenomena together, and
seeking economic wisdom behind Shari’ah provisions or determining what short and
long-term effects they may have on economic life. The function of fiqh, on the
other hand, is to indentify Shari’ah injunctions from detailed textual evidence.

(ii) A joint function with fiqh: This is the formulation of economic policies and
provisions relevant to public welfare.

(iii) A function in support of fiqh: This is to help the faqih to arrive at the proper
Shari’ah ruling in cases where economic factors may play a part in deciding between
one possible ruling and another.

M. Asutay 7 March 2011

I
Empirical Theories   Hypotheses D
N Observations  
Generalisations E
D (Data)
Methodology of Islamic Political Economy
U D
C U
T DEVELOPING ISLAMIC POLITICAL ECONOMY KNOWLEDGE: C
I METHODOLOGICAL MECHANISM- DEDUCTIVE T AND INDUCTIVE
O RESEARCH STRATEGIES I
N O
Social research attempt to connect theory with empirical dataN– the evidence we observe
from the social world. In other words, the relationship between research and theory can
be seen in terms of two different, though interrelated models.

Researchers may make this connection by starting with a social theory and then testing
some of its implications with data. This is the process of deductive research; it is most often
the strategy used in quantitative methods. In other words, it begins with general
principles (theory), and then turns to observation to test the validity of theoretical
expectations.

Alternatively, researchers may develop a connection between social theory and data by
first collecting the data and then developing a theory that explains patterns in the data.
This inductive research process is more often the strategy used in qualitative methods. In
other words, it begins with concrete, specific observations and aims at identifying general
principles that govern what’s being observed.

Inductive reasoning, or induction, moves from the particular to the general, from a set of
specific observations to the discovery of a pattern that represents some degree of order
among all the given events. Notice, incidentally, that your discovery doesn’t necessarily
tell you why the pattern exists-just that it does.

Deductive reasoning, however, moves from the general to the specific. It moves from
(1) a pattern that might be logically or theoretically expected to (2) observations that test
whether the expected pattern actually occur.

Notice that deduction begins with ‘why’ and moves to “whether’, while induction moves
in the opposite direction.

Studying specific topics typically involves alternating between the two: observations may
suggest theoretical explanations; those explanations suggest other patterns we should be
able to observe; further observations test those expectations; and the result lead to
modifications in the theory and in subsequent expectations.

M. Asutay 8 March 2011

Methodology of Islamic Political Economy

These two methodological mechanisms are used to develop the science of Islamic
political/moral economy.

Deductive approach begins with extracting the essence of Islamic teachings into
elements of Islamic economic theory.

Due to the universal claim of truth by Islamic political economy, it has normative
assumptions to shape the economic and financial choices and preferences of individuals,
which necessitates the deductive reasoning. In other words, individual choices and
preferences are shaped and informed by Qur’anic knowledge; as individual action is
considered to be socially constructed and defined by subjective perception of various
backgrounds.

Inductive approach, in contrast, begins by describing the real behaviour of economic

agents and the interactions between them in the economy.

Muslim scholars over the years contributed to the development of knowledge through
inductive knowledge. Qur’an itself tells human beings to observe in understanding
God’s presence.

M. Asutay 9 March 2011

Methodology of Islamic Political Economy

THE METHODOLOGICAL-ETHICAL FOUNDATIONS OF ISLAMIC

POLITICAL ECONOMY

The following fundamental points should be noted to clarify the bases of Islamic value
judgements:

(i) Islam’s is a philosophy of ‘right’ – i.e. it first specifies what is ‘right’ and then allows
human beings to work out the most profitable course of action open to them within
the given institutional constraints, which too must gradually change to reflect the
Islamic ideals. And, there is nothing authoritarian about such a vision: because the
choice is between the ‘right’ course of action and the ‘wrong’ one is essentially
voluntaristic (see, Qur’an, 10: 108).

(ii) The philosophy of ‘right’ is best spelt out by four ethical axioms: tawheed (unity),
al’adl wal ihsan (equilibrium), ikhtiar (free will) and fardh (social responsibility).
According to the Unity axiom an individual’s economic activity must be guided by
an ethical vision by obeying al’adl wal ihsan, which requires maintaining a just balance
in the basic social structure. Free will is the foundation on which the individual’s
freedom rests; but the potentiality of this freedom is best realised if individual makes
the ‘right’ choice, i.e. according to the Divine Law; and if he/she discharges social
responsibility.

(iii) Islamic concept of freedom is different from the Kantian concept of the absolute
autonomy of individual, which is secured by obeying the laws that he/she makes for
himself/herself. It differs from the Kantian view in two respects: (a) In Islamic
perspective, individual’s autonomy is not ‘absolute’ but only relative to Allah’s Will.;
(b) and individual moves with bounded rationality. As opposed to the Benthamite
utilitarian philosophy according to which preferences of all individuals carry equal
‘weight’, the needs of least-privileged in the society carry a higher ‘weight’ as
opposed to those of the rich in the Islamic perspective. And in contrast to
Nozickian philosophy, the needs of the poor in the society must be met
irrespective of their income. Indeed, individual secures freedom by helping the least
privileged in the society; a failure to do so is declared as denial of faith (see, Qur’an,
107: 1-3). The obligation to discharge one’s responsibility to the society in general
and to the poor only enlarges the sum-total of individual freedoms.

(iv) Islam rejects the concept of ‘absolute’ ownership by either the individual or the
state: Allah is the absolute owner of all wealth (Qur’an, 3: 180) and human beings
are only a trustee of Allah’s wealth; and he/she must spend it as a trustee should
(Qur’an, 57: 7). Important to note that Allah’s heritage is bestowed on mankind as a
collectivity; it is not bestowed on a privileged few or on the state. Trusteeship
implies is a negation of the consequence-insensitivity of the capitalistic conception
of the exercise of the right to private property; and of its complete denial under
socialism. Therefore, Qur’an enjoins that while exercising their ‘relative’ ownership
right of private property, those who have must give to the have-nots. Hence, the
optimality between spiritual ascent and daily concerns.

M. Asutay 10 March 2011

Methodology of Islamic Political Economy

METHODOLOGICAL PREMISES OF THE ISLAMIC POLITICAL

ECONOMY

Islamic political economy as a system based paradigm is based on certain methodological

premises in forming its methodological framework, which complements the behavioural
norms as aimed to be informed by the divine wisdom.

(i) In contrast to neo-classical economics, which accepts self-interest as rational,

economic behaviour in Islamic political economy is guided by commitment, which
requires that an economic agent chooses a course of action that also enhances the
welfare of others, even though doing so may mean accepting a cut in his own
material welfare (Qur’an, 3: 92). It should be noted that such an attitude is
voluntary.

(ii) Acting according to dictates of Islamic ethics is ‘rational’ because “the likeness of
those who spend their wealth in Allah’s way is the likeness of a grain which grows
seven ears, in every ear a hundred grain” (Qur’an, 2: 261). In addition, according to
Qur’an, it is irrational for human beings, to be content with only this worldly
material affluence (Qur’an, 42: 20).

(iii) In an Islamic economy, the dictates of equity must be combined with the
requirements of efficiency. Thus, grossly inequitable ‘states of economy’, even
though efficient, will be excluded from the choice set in an Islamic economy. This
implies that, at a theoretical level, the efficiency-oriented and distributionally neutral
rule of Pareto optimality will be replaced or at least supplemented by a
‘lexicographic’ ordering of individual preferences to reflect the priority of the needs
of the least-privileged in the society over those rich.

(iv) The axiom of al’adl, interpreted broadly, defines a first configuration of

consumption, production and distribution relations. An important implication of
this principles is that the proportion of wage-goods in the ‘commodity basket’ will
have to rise over time in an Islamic economy; and the consumption and production
of wasteful luxuries will be minimized by virtue of the Qur’anic commandments:
“Do not squander your possessions of nullity” (Qur’an, 2: 188).

(v) According to ihsan (beneficence), the highlight of this configuration is an over-riding

concern for the lot of the least privileged in the society. It also establishes an
entitlement of the poor in the resources of the society. Qur’an (70: 24 and 25): “In
whose wealth a due share is included for the needy and the disposed”, which follows
that the ‘dispossessed’ of the society can claim their ‘due share’ as a matter of their
‘right’ (haq), and not as a matter of charity. Entitlements of the poor may be of two
kinds: (a) they may define the endowment, or the asset ownership of the individual;
(b) or they may indicate on ‘exchange entitlement mapping’ telling us about the
alternative assets that the individual commands.

M. Asutay 11 March 2011

Methodology of Islamic Political Economy

NEO-CLASSICAL METHODOLOGY

The methodological framework of neo-classical/conventional economic system can

be summarised as follow:

(i) The point of departure is methodological individualism.

(ii) Behavioural postulate: self-interest oriented individuals who (a) seek their own
interests, (b) in a rational way, and (c) try to maximise his/her own utility;

(iii) Market exchange.

Hence, conventional economic system is based on one dimensional utility function, which leads
to homoeconomicus – the economic individual in a market system.

METHODOLOGY OF ISLAMIC POLITICAL/MORAL ECONOMY

The methodological postulates of Islamic Political Economy, on the other hand, can be
summarised as follows:
(i) Sociotropic individual, not only individualism but social concern is a prerequisite;
(ii) Behavioural postulates: socially concerned God-conscious individuals who (a) in
seeking their interests concern with the social good, (b) conducting economic
activity in a rational way in accordance with the Islamic constraints regarding
social environment and hereafter; and (c) in trying to maximise his/her utility
seek to maximise social welfare as well by taking into account the hereafter as
well.
(iii) Market exchange is the main feature of economic operation of the Islamic system;
however, this system is filtered through an Islamic process to produce a socially
concerned environmentally friendly system. In this process, socialist and welfare
state oriented frameworks are avoided not to curb incentives in the economy.

Hence, two-dimensional utility function (present and the hereafter), which leads to
homoIslamicus,

or

as Arif (1989: 92-94) names ‘Tab’ay’ (obedient) human-being. “To be a Muslim is a

necessary but not a sufficient condition to be a Tab’ay” (Arif, 1989: 91). As to be
qualified as a tab’ay, one needs to operationalise Islamic principles in every aspects of
her/his life.

M. Asutay 12 March 2011