An Islamic Critique of Neoclassical Economics

Abstract

The grand vision of Islamic Economics to provide a just and equitable alternative to Capitalism, has been transformed into a minor variant of capitalism. The paper starts by explaining the many reasons for the failure of Islamic Economists to create a genuine alternative to conventional economic theory. It then goes on to spell out the many contrasts and oppositions between Islamic views and the secular modern worldview which underlies modern economic theory. Some of the points of opposition discussed in the paper are the following. Human free will means that deterministic models of behavior creating mathematical laws for choices cannot be correct. Human motivations are complex, conflicting, and diverse, and not reducible to maximization of any single function. Foundations of economics involve hidden value judgements while pretending to be objective and positive. For example, the Pareto criteria gives precedence to property rights over basic needs. Economists argue that their job is to satisfy all wants, regardless of origin. This fails to differentiate between needs and idle desires, a distinction crucial in Islamic teachings. Whereas the market economy is based on competition among greedy participants, and Islamic economy is based on cooperation between generous participants. There is substantial empirical evidence that the economists’ model of homo economics has no correspondence with the reality of human behavior, which is far more social. Similarly, the failure of economic theory to prevent crises, or to ameliorate them has been widely noted. The paper argues that Islam offers solutions to our collective economic problems which are far superior to those offered by conventional economic theory.

Keywords: Islamic Economics, Neoclassical, Capitalism, Competition, Cooperation

JEL Classification: B29, B41