Moral Economic Axioms, Preference, Choice, and Welfare in Conventional and Islamic Economics

An economic system does not function in a vacuum. It relies on certain worldview, paradigm, and axioms. That is true for conventional and Islamic economics, as well. Individual and societal welfare is determined by choices and preferences which are shaped by certain moral axioms. Therefore, in order to understand the social and economic welfare projected by conventional and Islamic economics, it is necessary to explore their underlying paradigm and axioms for preference formation and choices. Even though conventional economics assumes that preferences are given, it actually considers that they are driven by self-interest. It does not discuss the formation of preferences. Rather, it starts from revealed preferences to understand choices of consumers and producers. Thus, preference formation is like a black box. The paper is an attempt to unlock this black box by presenting moral axioms driven from comparable teleology, axiology, and anthropology in secular and Islamic worldview. The paper compares and contrasts morality in conventional and Islamic economics in terms of their underlying paradigm and moral axioms for preference formation, choice, and welfare. Then, it discusses the implications of moral axioms for consumer utility maximization and producer profit maximization.

1.      Introduction

Economics is a study of how to use scarce resources to produce desired outcome. Economic efficiency is measured in terms of the best utilization of resources in achieving such outcome. On the other hand, morality is about a good life. It includes the epistemic understanding of good and making good choices to live prudent life. Even though conventional economics deals with moral issues only under normative approach, in reality, positive economics too has to rely on certain moral principles. Thus, economic morality in general is not limited to religious or normative domain. It is a necessary foundation for both conventional and Islamic economics.  Normatively speaking, economic morality is about what is the desired/good outcome. Thus, normative success of an economic system is determined by its accomplishment of producing good outcome. Economic morality needs to address certain key questions about those outcomes. First, we need to define good. What is good? Is there anything intrinsically good? Can we talk about relative goodness? What sort of person shall we be? What kinds of moral laws shall we follow? Why? Second, what shall we measure/praise to see whether we accomplish the desired good? Shall we praise process or outcome? Third, what is the outcome we shall give priority? Is it individual welfare? Societal welfare? Individual rights and justice? Fourth, how shall we measure welfare? Is it satisfaction of preferences? is it subjective feeling associated with preferences? Is it objective outcome such as health and success? Fifth, how can we include different time perception in welfare analysis? Do we need different model for temporal and eternal life?

 Islamic moral economy differs from conventional economics in addressing the questions above due to its paradigmatic differences. The former relies on Tawhidi paradigm while the latter relies on secular paradigm. Thus, Islamic worldview is defined according to Tawhidi ontology, epistemology, anthropology, teleology, and axiology, while secular worldview is established based on secular paradigm with its own secular ontology, epistemology, anthropology, teleology, and axiology. Moral axioms of both economic systems are driven from their comparable paradigms. Thus, it is essential to first outline paradigmatic differences between the underlying worldview of Islamic and conventional economics. 

 2.      Secular and Tawhidi Axiology

 In this section, we first will discuss Kantian universal egoism and libertarian morality as other forms of secular axiology. Then, we will present Tawhidi axiology in compared to the secular one. Tawhidi axiology differs from Kantian axiology in terms of defining good.

 3.      Secular and Tawhidi Teleology

 Modern secular paradigm does not explicitly recognize any telos. Therefore, secular science completely disregards telos in studying the universe. However, secular paradigm assumes that every human being determines his or her own telos in life. Tawhidi teleology clearly states that everything is created for certain purpose. That is the case because everything is the work of All-Wise God. Thus, the infinite wisdom of God requires wisdom in all of His action. In this section, we will compare and contrast secular and Tawhidi teleology.

 4.      Secular and Tawhidi Anthropology

The Tawhidi anthropology further enhances Aristotelean ethics by adding the divinely ordained law to the teleological approach. The laws encoded in human nature and in the Divine message demand the realization of human excellence by making good choices. In this section, we will discuss secular and Tawhidi anthropology in terms of their implication for economic morality.

 5.      Islamic Moral Economic Axioms

In this part, we will define moral economic axioms based on Tawhidi teleology, axiology and anthropology.

 6.      Preference Formation in Conventional and Islamic Moral Economy

 From Islamic moral economics, the formation of right preference is the ones that help to reach God’s pleasure as the ultimate end. God’s pleasure is function of fulfilled life in realizing one’s potential toward human perfection. Thus, in forming preferences, it is important to be aware of dual nature of human being and the Divine telos. 

  7.      Utility Maximization and Consumption under Islamic Moral Economy

 Islamic moral economy does not set pleasure, benefit, or happiness as the ultimate end. Rather, it considers God’s pleasure as the ultimate end. Thus, utilitarian consumers have hedonic utility function while Aristotelian consumers have eudonic utility function. In other words, eudonic happiness is not maximization of pleasure. Rather, it is maximization of virtuous actions which come with higher level of pleasure. It is the achievement of excellence in activity depending on potentiality of individuals. 

 8.      Profit Maximization and Production Theory under Islamic Moral Economy

 Tawhidi paradigm perceives every human being as God’s most important project in the universe. Therefore, it does not allow human to be treated as means for profit maximization. Rather, it requires treating human being with great dignity. Therefore, the goal function of a firm shall not maximizing profit only. it shall not use workers as means. 

 9.      Conclusion

 Please see the attachement for the longer version of the proposed paper...