Genealogy and Objectives of Economic Science

1. Genealogy and Objectives of Economic Science Muhammad Zahid Siddique Management Science Department National University of Computer and Emerging Sciences FAST, Karachi Campus

2. Objectives and theme • Trend of Islamization of social sciences; especially of economics • but socio-political context of economics based on enlightenment values neglected • Research program agenda of economics is two-fold: • legitimize Capitalist social order according to the liberal values and thereby, • justify the liberal ideals of political philosophy • Economics sees self-interested individuation and social harmony as mutually reinforcing and harmonious • State is supposed to provide a neutral framework within which people can pursue their own preferences based on their own conceptions of good UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

3. Objectives and theme • The paper attempts to highlight the link between this ideal of social organization and its broader framework, called liberalism • this theoretical link not accidental, but relates closely to individualistic ideology which eschews questions of moral values regarding right & wrong ends of life UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

4. Defining paradigms • Enlightenment philosophers believed that science can discover ultimate & universal truths • Enlightenment is defined as condition of ‘maturity of human intellect’ from external reliance for guidance • Kuhn explicitly explained the role of belief system, what he calls Paradigm • These beliefs form the foundation of the education • Research is “a strenuous and devoted attempt to force nature into the conceptual boxes supplied by professional education” • Popper asserted the importance of theory-bound interpretation of observations • Neutral’ and ‘objective’ empirical work, where facts speak for themselves is an impossible dream UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

5. Elements of social science paradigm • Two questions are at the heart of social science paradigm UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

6. Broader framework of social sciences UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

7. Liberal conceptualization of society • Enlightenment’s ideal of ‘self-interested individuation’ as expressed in neoclassical theory of utility and profit-maximizing consumers/ firms and competitive markets is the key source to justify liberal society • It is based on two basis presumptions: • priority of individuals’ freedom over society • “The only purpose for which power can be rightfully exercised over any member of a civilized society, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warranty…The only part of the conduct of any one, for which he is amenable to society, is that which concerns others. In part which merely concerns himself, his independence is, of right, absolute. Over himself, over his body and mind, the individual is sovereign.” (Mill (1865), On Liberty: p. 6) UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

8. Liberal conceptualization of society • Pursuit of self-interest by each individual guarantees maximum welfare of society • “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest” • From this analysis follows: • the principle of economic-liberty as desirable and just because • it allows and encourages man’s labor to develop in accordance with his capacities and purposes, and • enables him to maximize the rewards of his efforts UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

9. Liberal conceptualization of society • hence the need for establishing a just social structure which is most conducive for developing the skill of ‘self-interest’ orientation and for promoting ‘physical productivity’ • Such a social structure is articulated by market society (civil society) based on the principle of division of labor UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

10. Liberal conceptualization of society • The standard Smithian Model of just liberal-capitalist society can be shown as More freedom Accumulation of capital depends on Physical productivity more needs more Size of market Division of labour expands Leads to Expansion in mutual dependence Exchange-relationships Willingness to form UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

11. Economic perfectionism: standard plea for markets • Neoclassical economics was the theoretical response to Marx’s revolutionary ideas against liberal capitalism • It’s a technology to justify liberal capitalist social order • Kantian-Humean foundations of neoclassical economics evident in its commitment to methodological individualism • This economic methodology—moving pass the stage of labour theory of value now—justifies liberal values on the grounds that value is determined by preferences without asking the question • where do preferences and production technology come from • it sees society based on material grounds and hence tries to give naturalistic justification of capitalism UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

12. Economic perfectionism: standard plea for markets • Great appeal of neoclassical economics: an apparently coherent picture of a complex system • Individual preferences generate demand curves • schedule of consumer’s utility-maximization behaviour • Profit maximisation generates supply curves • schedule of firm’s production behaviour • Million dollar question: Is it possible to reconcile conflicting decisions of both without hurting anyone’s interest? • Demanders: pay as little as possible to maximize utility • Suppliers: charge as much as possible to maximize profit UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

13. Economic perfectionism: standard plea for markets • Answer ‘Equilibrium-methodology’: Intersection of demand and supply determines prices & outputs in market • Price is a signaling and rationing device for allocating resources in free market societies • Shortages and surpluses cause prices to adjust towards equilibrium • Hall marks of markets: • Equilibrium: self-interest is harmonious • Stability: self-interest is reinforcing • Efficiency: self-interest assures welfare (freedom) UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

14. Economic perfectionism: standard plea for markets • All markets harmonise in general equilibrium • Society is seen as market • “In fact, the whole world may be looked upon as a vast general market made up of diverse special markets where social wealth is bought and sold. Our task then is to discover the laws to which these purchases and sales tend to conform automatically.” [Walras, Elements of Pure Economics: p.84] • Welfare maximised by free markets • Consumer sovereignty ensured • “no conscious agent is needed to choose a price for a good, and that sum total of individual tastes and talents is sufficient to determine a price, and that such a price will guide resource allocation towards efficiency, equity and stability” [Cole, Cameron and Edward (1983)] UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

15. Economic perfectionism: standard plea for markets • Based on this myth, it is believed that • competitive business enterprise is superior to its public ownership because it leads to efficient resource allocation • monopoly is a necessary evil • more competition is superior to less • The argument leads to the global justification of competitive enterprise so as to increase welfare of all societies UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

16. Economic perfectionism: theory of state • Practical philosophy flowing out of it is: • “Greed of one man is considered to be the adequate check on that of another and universal greed can work out the highest attainable good for all. Hands off, then, state, church, etc and let selfishness have its perfect work” [Clark (1877): p. 712] • “Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do as well as to determine what we shall do” [Bentham (1789)] • State is supposed to be neutral with respect to individuals’ ends of life—treat them all equally good • Maintain law and order to protect property / freedom • Correcting market failures—public goods & externalities • Regulate monetary framework UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

17. Theoretical Agenda of Economics in the General Framework UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique

18. Conclusion • Economic science is not a positive science in any sense, rather built upon premises, assumptions and postulates diametrically opposed to Islamic ones • endorses self-interested, greedy and competitive individuation as natural • negates love-based social organizations in favor or social-contract • legitimizes market-friendly liberal state policies • articulates society based on material grounds—not religious • asks for subordination of all property to capitalist property form—dedicated to accumulation alone • Justifying economic science means legitimizing liberal capitalist values and transaction forms on Islamic grounds UMT-Lahore IM Conference March 30, 2009 M Zahid Siddique