between nations and all that makes social progress illusory. Ill-rooted in facts, such insistence also defies common sense. It is, therefore, best to brush aside libertarianism and accept that an active public policy is necessary (though not sufficient) to create the right conditions to maximise the happiness and well-being of a diverse humanity. What is certain is that amoral market solutions produced by self-interest maximisation do not play a central role in a comprehensive agenda for enhancing human well-being.
III. Religion, Ethics, and Economics
Given, then, the ethical underpinnings of economic motivation, the next issues to consider are where to find the ethical principles – e.g., impartiality, justice, a deeply felt sense of commitment and social responsibility, especially to the least-privileged in society (or the “underclass”, as Gunnar Myrdal put it) – that command widespread and universal (voluntary) support; and how to operationalise them as major regulators of economic activity? There have been influential economists [e.g., Weber (1905); Tawney (1937); Viner (1978)] who regard Christian ethics to be the driving force of capitalism; and some others [Tinbergen (1985)] who consider it an important force in the development of (Western) socialism. Earlier, Adam Smith’s (1776) individualism clearly presumed that the socially beneficial working of selfinterest was “subject to built-in restraints derived from morals, religion, custom, and education” [Coats (1971); p. 9]; and John Stuart Mill (1874) regarded religion as “a more cunning sort of police” (p. 415). It has been stressed that religion has, historically, performed a useful (secular) function, whose ‘utility’ has increased, not diminished, with the passage of time. The fact is that, with the recognition of the ethical connection of economics, it becomes difficult to deny a positive (functional) role to religion – e.g., to improve the working of an individualist economic system like capitalism.
i) The Functional and Constitutive Roles of Religion
However, on balance, the economic role of religion has been devalued in the West. The general attitude is that religion, though privately vital, is indifferent, if not altogether irrelevant, when it comes to devising rules for the conduct of economic and social policy. True, ethical behaviour may be vital to producing a greater degree of social cohesion; yet it is asserted that the principles governing it are derivable from reason (even common sense) alone. Secular morality is, therefore, rated higher than religion-based morality. Thus, in the Mill’s quote cited above, religion is seen as a useful “supplement to human laws”. (Oddly enough, he sees religion as operating mainly through the feeling of self-interest (p. 411).) Russell (1954) forcefully rejects the relevance of religion in the formation of modern ethical philosophy: “the rightness and wrongness of an act depends upon its probable consequences, and not upon its belonging to some class of acts labelled virtuous or sinful without regard to their effects” (p. 138). Joan Robinson (1973) generally asserts the superiority of secular ethical values to religious values. But this view is more of an affirmation of the superiority of secular ethics rather than an assertion of the overriding role of religion in human affairs, or accepting it as a source of ethical values. In particular, this view amounts to a repudiation of the position that religion per se has been the dominant force in the evolution of a universally accepted code of ethics. However, there have been some respectable exceptions to this widely held ‘secularistic view’ of religion. In his account of the rise of capitalism in the West, Tawney (1937) could report that “the line of division between the spheres of religion and secular business…is shifting” (p. 18); and that a crucial factor in the progress of Western capitalism was Calvin’s reinterpretation of Christian religious values which ended the “long estrangements” between the duties of religion and the call of business (p. 238). Tinbergen (1985) argues that “new spiritual foundations rooted in religion are required to repair the damage being done by the cultural crisis to human happiness”. This is because “far from being an ‘opium of the people’ religion...is a necessary source of inspiration for developing an individual’s spiritual and moral potential” (p. 178). Religion is seen here as directly contributing to human happiness by inducing greater spirituality in people, and not only because it may lead to a higher level of economic activity. This view seems to have historical antecedents as well; which is that moral values become decisive in moulding economic behaviour only when these are presented as flowing from religious beliefs. Fogel (2000) attributes “Four Ethical Awakenings” in the United States (from 1730 to the present time) to the work of religious people (the Social Gospellers) who believed that “the value and truth of religion were shown by the capacity to create God’s kingdom on earth rather than in the hereafter. The essence of religion became the elimination of poverty and inequality” (p. 121).
ii) Limits to Voluntarism
Religion, by virtue of its unique system of reward and punishment which religious (even irreligious) people accept without question, acts as “a solvent for the needs of explicit or internalized social cooperation” [Hirsch (1977); p. 138]; and it encourages self-interested individuals to act for society. The reason is that, without coercion and/or invisible religious sanctions, voluntary cooperation cannot meet society’s demands for scarce altruistic resources which will, in turn, raise the “policing cost” to keep the free-riders in check. Also, most ethical values (e.g., honesty, trust, etc.) that help the economy work more efficiently and equitably are public goods that are necessary inputs into much social output. But the former will be undersupplied if the discharge of social obligations is left entirely to the self-interested individual’s good sense. To see the nature of the problem, let us consider the feasibility of leaving it all to the individual to discharge his/her social responsibility to aid the poor voluntarily. A moment’s reflection should show that the size of the charitable contributions will, at best, be minimal. The source of the problem is the phenomenon of free-riding (which, in extreme cases, will break the horse’s back) if the required contributions to aid funds are not enforced (by the state and out of fear of religious sanctions), and if these efforts are uncoordinated. In such situations, the altruistic contributor may find that either a sufficient number of people will contribute even if only I do not contribute; or that other people will not contribute even if I contribute. If all or most contributors reason thus, then, given that charitable giving is a cost, not enough funds will be forthcoming to finance the charity in question. A related phenomenon is the assurance problem, which leads to similar results: it is that, even assuming that the contributing individual is not a free-rider, he may nevertheless not contribute, unless he is reasonably assured that many will contribute to charity, on the grounds that doing so is morally and socially irresponsible. It follows, then, that “the laudable desire to be effectively beneficent may be self-defeating, where coercion (secular or religious) is absent. So even in a society of morally upright, altruistic [individuals], the impulse to collective beneficence may be impotent” [Allen Buchanan (1985); p. 73].
IV. Islam, Ethics, and Economics
i) General Motivation
Western ideas about the functional and constitutive roles of religion, i.e., its positive contribution to material and spiritual prosperity, are valuable. No less important are the central ethical notions emphasised by (secular) normative public-choice theories: the need to create well-ordered societies based on justice and fairness; the importance of institutions and processes that guarantee the fairness of the basic principles of justice for winning the voluntary support of the people; the necessity to meet the needs of the least-privileged in society on a priority basis, etc. These insights should help formulate the Islamic response to modern social, political and economic challenges. In return, Islam’s own highly original contributions should reinforce, even correct, some of these ideas and insights. Most worthy of mention in this context are the following: Islam abolishes the distinction between this-worldly and that-worldly pursuits and concerns and links welfare (falāḥ) in this world to that in the hereafter; spiritual ascension is firmly related to doing good to fellow human beings, especially to the poor, the needy and the weak; the act of giving is not regarded
