Masudul Alam Choudhury

Islamic Economics as MesoscienceA New Paradigm of Knowledge

Islamic Economics as Mesoscience

Masudul Alam Choudhury

Islamic Economicsas MesoscienceA New Paradigm of Knowledge

123

Masudul Alam ChoudhuryPostgraduate Program in IslamicEconomics & FinanceTrisakti UniversityJakarta, Indonesia

Department of Social Justice Education,Ontario Institute for Studies in EducationUniversity of TorontoToronto, Canada

ISBN 978-981-15-6053-8 ISBN 978-981-15-6054-5 (eBook)https://doi.org/10.1007/978-981-15-6054-5

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Preface

Science bereft of sound epistemological foundation is muddle-headed. Themeta-science of ‘everything’ deals with the quest for a unique and universal theorythat underlies every branch of the socio-scientific world-system in generality and itsparticulars. The categorization of application of the uniquely generalized theory isonly in terms of diversity of issues and problems in different areas of investigation.While mainstream socio-scientific thought is embedded in its humanly differenti-ated multilateral human concocted domains of understanding, this causes dichot-omy between the a priori and a posteriori segments of deductive reasoningseparated from inductive reasoning. Therefore, if we consider Kant’s ethical adage:“So act as to treat humanity, whether in thy own person or in that of any other, inevery case as an end withal, never as means only,”1 there appears a dichotomybetween ethics and efficiency, self and other, science and society and the like. Yetethical holism demands complementarities to exist between these two ends to bescientifically and socially acceptable.

In economic science of growth, efficiency, development, and ethics one findstrade-off between the two goals despite the fact that no reasonable side would liketo part with the ethical obligation to establish a caring society. The problem is not ofmany who think rightfully. The problem lies in the methodology of an optimal,steady-state, and competition framework that must thereby premise its formal andapplied concepts on the axiom of the scarcity of resources. This assumption is atonce also coterminous with the neoclassical principle of opportunity cost andmarginal rate of substitution in optimal resource allocation. It is the core of rationalchoice theory. It is bereft of a permanent evolutionary learning framework ofresource augmentation that defies the axiom of the scarcity of resources as projectedin the measures of competition for optimal allocation of scarce resources withsteady-state equilibrium. The limitation of mainstream economics transcends thiskind of microeconomic perspective to macroeconomics. Thus, the axiom of rationalchoice entrapped in the assumption of the scarcity of resources, and thereby

1Kant, I. (1909). Kant’s Critique of Practical Reason and Other Works on the Theory of Ethics, inAbbot, T.K. ed. Pg. 47. Longmans, London. 1909), p. 47.

v

competition and marginalist hypothesis, remains untenable in embodying the eth-ical and economic perspectives of a cogent theory of ethico-economics whereinethics and economics exist as analytical and applied realities. This kind ofendogenous treatment of ethics and economics is grounded on a new method-ological premise. The quest in the methodological direction leads into the foun-dation of a theory of meso-economics as mesoscience. The much needed integratedstudy of science and society, ethics and economics have failed to be grounded onany such epistemological premise with an integrated theoretical worldview and itsapplied method. Thereby, the belief in and the behavioral properties of the coter-minous fields of ethics and economics in both the microeconomic and themacroeconomic fields remain empty in all of socio-scientific inquiry.

In the existing socio-scientific inquiry, ethics is seen to be exogenouslyimplanted in economics and science—not endogenously embedded in every dis-cipline.As for example, econometric models currently available, ever since Keynesdesired to make economics a handmaiden of ethics along the ideals presented inPrincipia Ethica by G.E. Moore (1903),2 never could implicate the ethical conse-quences in economic and social theory and consequential analytical modeling.Keynes’ epistemology relating to macroeconomic theory thereby had to yield torationality behavioral background (O’Donnell, 1989).3 Economics as a behavioralscience altogether succumbed to the optimal calculus of economic rationality and toethical rationalism. Thereby, science as a whole and economics in it could notacquire any functional ethical representation. Ethics remained exogenous to whatthe formal models quantified and implied. The general or rather the generalizedevolutionary learning ethico-economic system, the formalism with which this workdeals with, has no possibility except by exogenous ethical effect in any of themodels improvised in the literature.

The embedding of endogenous role of ethical parameterization in the generalizedabstracto-empirical model in our work is a contribution that extends the rationalityconstricted models of general equilibrium—steady state of evolutionary economics(Nelson & Winter, 1982)4– in the existing literature of optimal resource allocationtheory of pure exchange (Naimzada & Pireddu, 2018).5 See also Bisin & Verdier(2001)6 on cultural perturbations in evolutionary general equilibrium models.

2Moore, G. E. (1903). Principia Ethica, Cambridge University Press, Cambridge, England.3O’Donnell, R. M. (1989). “Some philosophical background”, in his Keynes: Philosophy,Economics & Politics, pp. 11–28, Macmillan, London, England.4Nelson, R. R. and S. G. Winter (1982). An Evolutionary Theory of Economic Change, theBelknap Press of the Harvard University Press, Cambridge, MA, USA.5Naimzada, A. & Pireddu, M. (2018). “Complex dynamics in an evolutionary general equilibriummodel”. Discrete Dynamics in Nature and Society, 13 pages. DOI: https://doi.org/10.1155/2018/8471624.6Bisin, A. and Verdier, T. (2001). “The economics of cultural transmission and the dynamics ofpreferences. Journal of Economic Theory, 97:2, pp. 298–319.

vi Preface

Now to search for the ultimate formalism of ethical endogeneity insocio-scientific thought and its epistemic rendering a field of the highest inquiryought to be discovered no matter where it can be found: Pursue truth as if you didnot have it. Knowledge and realism in abstraction and phenomenological evidencemake such discovery possible. Religion, abstraction, and abstruse applications inthe world of science can then be spearheaded by abstract mathematical logic.Economics is a form of philosophy concerning the interrelationship between theexchange reality of human concern triggered by its behavioral attributes (Simon,1957)7 and by the intricate logic of interdisciplinarity this quest embodies. Inclusivein such a knowledge-induced search for the vastly possible is the inevitable role ofGod as the great abstraction relating to the realism of socio-scientific world-system.On this matter, the great Indian mathematician, Srinivasa Ramanujan (quoted byKanigel, 2016, pp. 7 of Prologue)8 stated: “An equation for me has no meaning,” heonce said, “unless it expresses a thought of God.”On the ultimate reality of inducingGod and Truth uniquely and universally in the worldview of distinctive learning,the Qur’an (part of 24:35) declares in respect of the monotheistic oneness as thepedestal of knowledge through learning in everything: “Allah is the light of theheavens and the earth”. The saying of the Prophet Muhammadon, the matter of theultimate scope and objectivity of knowledge in Oneness of God and his Law ofUnity referred to as Tawhid in reference to both theology (abstraction) and thephenomenology of the world-system is this (Hadith Al-Bukhari, author’s bracketedinterjection): “My servant approaches Me with nothing more beloved to Me thanwhat I have made obligatory upon him (learning in the knowledge of monotheisticOneness), and My servant keeps drawing nearer to Me with voluntary works until Ilove him (unison between God self, and the universe). And when I love him, I amhis hearing with which he hears, his sight with which he sees, his hand with whichhe seizes, and his foot with which he walks (explained phenomenology). If he asksMe, I will surely give him, and if he seeks refuge in Me, I will surely protect him(the ultimate objective of knowledge, self and the world).”

The behavioral dimension of the new emergent theory of ethico-economicsexpressed by the meso-economic method of a new theory of knowledge-inducedintegration of preferences of the microeconomic world into disaggregate macroe-conomic theory to make them a meso-one becomes equally sensitive to endogenousethical/moral methodology and its parameterization. This challenge and its questand discovery are indeed the highest level of an intellectual feat of all times. That isindeed the direction of this work on the ethico-economic, meso-economics ofethical phenomenology in an alternative representation of analytics (econometricsand wellbeing) that we will refer to as the wellbeing objective criterion.

The Islamic methodological worldview of wellbeing arising from the primalontology of monotheistic oneness is invoked because of its uniqueness and uni-versality attributes in respect of the generality and particulars of ‘everything’

7Simon, H. (1957). Models of Man. John Wiley & Sons, New York, NY.8Kanigel, Robert (2016). The Man Who Knew Infinity: a Life of the Genius Ramanujan. Simon andSchuster. pp. 30–33.

Preface vii

(Barrow, 1991).9 The emergent derivation of the law of Oneness in relation to thedetails of issues and problems of the world-system in the light of relational unity ofknowledge presented in the Qur’an (36:36)10 combines the deductive abstractionwith the phenomenological inductive recursively in continuums of knowledge,space, and time dimensions. The derived methodological worldview formalized andinvestigated in the mesoscientific objective of the wellbeing criterion thus earns itssocio-scientific candidacy.

The Islamic primal ontological methodology of monotheistic oneness (Tawhidas the Law) in its belief and functional attributes offers this unique and universalworldview to ‘everything.’ Yet it is not the contribution on which the Muslims andtheir disciplines have rested. Consequently, like the methodological failure ofKantian a priori and a posteriori dichotomy in knowing the unified reality of truthby unity of knowledge and the final episteme, and which renders the field ofdevelopment studies to attain the ethical integration in a unified endogenous rela-tional oneness, so also the so-called ‘Islamic’ disciplines like economics, finance,science, and society have failed utterly by their ontological and epistemologicalemptiness. The most profound ontological primacy of monotheistic oneness(Tawhid as the Qur’anic Law) has been replaced by the dysfunctional nature ofshari’ah as humanly concocted and uttered objective and purpose by the Muslimsects. Indeed, the equivalence of shari’ah to Tawhid is only in terms of the latter.Thereby, shari’ah is simply the ‘way’ from and towards knowing Tawhid in theenlightening profundity of unity of knowledge as the law relating to world-system.But if this is the logical and clear evidential conclusion from the Qur’an, then notshari’ah but Tawhid alone as the belief, Law, application, and sustainability in themost methodological way becomes the sole objective of the true Islamic method-ological worldview across holism and possibilities.

Shari’ah if anything, though doubtfully, is therefore a partial examination of theworld-system of juristic innovations by various Muslim sects apart from theaccepted common rules laid down in the Qur’an (36:36). This law is ofmonotheistic unity of knowledge as relational phenomena in and across ‘every-thing.’ The so-called ‘Islamic’ economics and the intellectual legacy have failedutterly in the quest for the true Qur’anic methodological worldview. This slidingand decadence in Muslim scholarship have lasted for a long time now and continueson by its human-concocted design of shar’iah following sects and remaining afailed isolation of a separated world-system. Contrarily, Tawhid as Qur’anic law isof ‘everything’ (Choudhury, 2020).11 The Qur’an declares in this regard; seeQur’an (24:35). The so-called ‘Islamic’ methodology claiming shari’ah and in nosubstantiation by its Qur’anic relationship with Tawhid as the law of monotheistic

9Barrow, J.D. (1991).Theories of Everything, the Quest for Ultimate Explanation, OxfordUniversity Press, Oxford, England.10Qur’an (36:36): “Exalted is He who created all pairs - from what the earth grows and fromthemselves and from that which they do not know”.11Choudhury, M. A. (2020). Meta-Science of Tawhid, A Theory of Oneness. New Palgrave, NewYork, NY.

viii Preface

unity of knowledge by organic and symbiotic interrelations between entities(positive and negative) is no different from the Kantian dysfunction of organic unitybetween a priori and a posteriori (i.e. deductive and inductive, noumenon andphenomenon, pure reasoning and practical reasoning, etc.). This epistemic failure ismaintained in recursive continuity of being and becoming.

All such methodological implications of ethical endogeneity and its imminence inthe real problem solving of phenomenological effects are embedded in the objectivecriterion of wellbeing (maslaha in Arabic terminology). The wellbeing functionexpresses the mesoscientific analytics of micro-foundation of ethical unity ofendogenous by inter-variable causality in a large system of interactive, integrative,and learning relations. The methodological worldview of monotheistic unity ofknowledge that enables ethical endogeneity, and thereby inter-variable causalrecursive nature of complementary relations (positive or negative) in the wellbeingfunction, and makes the resulting methodical application good for ‘everything’ arealtogether unknown in so-called ‘Islamic’ economics, finance, social, and scientificthought. The resulting state of stagnation of ‘Islamic’ thought persisted for ages now.Even the use of the term maqasid as-shari’ah (purpose and objective of shari’ah) isbenign of any substantive treatment of Tawhid as the Law and its imminentmethodology of the unity of knowledge in all details of the world-system.

The conceptual and applied properties of the underlying dynamics of theTawhidi methodological worldview and its wellbeing criterion with its system ofinter-variable causal relations are presented throughout this work. It is presentedhere to initiate the underlying methodology extending from Primal Ontology toEpistemology to Phenomenology in continuums of sustainability by evolutionarylearning. The Tawhidi methodology built upon the theory of causality by the unityof knowledge as endogenous induction of endogenous inter-variable relations is adistinctive contribution of this work. It rescues the Islamic methodologicalworldview from the intricacies that the subject of causality was rendered by theIslamic theologians. Yet no creative avail of abstracto-empirical nature could berealized (Ozalp, 2016, pp 245–260).12

In conclusion to this preface of our work, we claim to have laid down thegroundwork of a new meso-economics and mesoscientific episteme ofinter-causality between the full domain of endogenous variables according to themonotheistic methodological worldview of unity of knowledge. This work extendsthe circular causality theme to meso-economics with a distinctive analytical out-look. It presents a critique and a substantive outlook of a truly Islamic ontologicalfoundation of its meso-economic framework. The resulting abstracto-empiricalmethodology contrasts with the so-called mainstream economic formalism ofexisting ‘Islamic’ economics, finance, science, and society. By itsabstracto-empirical formalism, this work has replaced the theological argumentscentering on an unresolved meaning of causality.

12Ozalp, M. (2016). God and Tawhid in Classical Islamic Theology and Said Nursi’s Risale-i Nur.Ph.D. Thesis, Department of Studies in Religion, School of Letters, Art and Media Faculty of Artsand Social Sciences, University of Sydney, Australia.

Preface ix

The present work has also established the foundation of the truly Islamicmethodological worldview of the Tawhidi groundwork of Islamic economics,finance, science, and society. The present work thereby claims that over the yearssince the inception of the catchword of ‘Islamic’ economics was due to the adventof some Indian scholarly thought in this regard and the embellishment of this‘Islamic’ terminology by the oil-revenues of the Middle East. The convenienceof the terminology was maintained by the political advantage of rich shareholdersand institutions in the Muslim world. The climate of benignity in scholarship andglobal contribution, except for the massing of shareholders’ wealth by so-called‘Islamic’ product designs and a questionably framed meaning attached to shari’ahcontra the Tawhidi methodological worldview has persisted and deepened today.

The New Critical Orientation of the Work

None of such states of intellectual weakness is acceptable in the great realm ofIslamic worldview taken in the Tawhidi meaning as universal law centered on theontological precept of the unity of knowledge and the generality and particularsof the world-system. It is just that, the gurus of the so-called ‘Islamic’ economicsand finance have failed to open their heart, mind, and phenomenological outlook tothe Qur’an and sunnah to understand the fundamental truth of Tawhid as the Law of‘everything.’ All that has been pursued in vain comprise the footsteps of therationalist paradigms. The Qur’an declares (6:125, explication by author inbracket): “Those whom Allah (in His plan of Tawhid as Law) wills to guide,- Heopens their breast to Islam; those whom He wills to leave straying,- He makes theirbreast closed and constricted (non-Tawhid), as if they had to climb up to the skies:thus does Allah (heap) the penalty on those who refuse to believe (Truth of Tawhidas the Law of monotheistic Oneness).” Such belief is heightened and deepened bythe understanding of the inter-causal organic relations between the cardinal ele-ments of haqq al-yaqin (Tawhid), Ilm al-yaqin (Qur’an and sunnah as medium), andayn al-yaqin (cognition of the world-system in terms of Tawhid = phenomenology).The intertwining of these experiences in the knowledge, space, and time dimensionsintra-system and inter-systems embraces the substantive meaning of evolutionarysustainability.

Contribution

The contributed chapters of this work will include the themes surrounding amethodological approach to Islamic economics and its criticism. The studies fromall different points of analytical view are welcomed. Despite these alternativeviewpoints, the meso-economic construction of ethics and economics as an

x Preface

endogenous phenomenon with analytical and applied perspectives is presented. Inwelcoming such wide perspectives on the abstract nature, methodological nature,and critique of what ought to be a true worldview of Islamic economics and financein a broad socio-scientific perspective, it is hoped that fair treatment is given tovarious viewpoints on the methodology of Islamic economics and finance in arigorous outlook upholding the Qur’an and sunnah as the primal ontological origin.The broad mesoscientific worldview is upheld.

While exploring the possibility of Islamic economics and finance in the world oflearning with the analytical methodological presentation the chapters of this workundertake applied and critical studies centered on the continuing theme ofmeso-economics of the wellbeing objective criterion and the alternative. Themeso-economic application of parameterised ethico-economic embedding in thefull-scale of inter-variable endogenous causality is a prime contribution of this workin its distinctive originality and contribution in socio-scientific field.This particularfield of the Tawhidi worldview transcends both the non-Tawhidi intellection ofmainstream economics and finance and the so-called ‘Islamic’ juristic interpretationof human-concocted narrowness of shari’ah in all its forms. Yet this is an issue forvarious authors in their contributions to explore with the full latitude of opennessand fairness of scholarly views.

This call for contributions also extends to areas of mainstream economics with afocus on analytical (econometric) methodology and applications that have thepotential of investigating various critiques of rationality and aggregation axioms inthe midst of treating the endogenous theory of ethico-economics. All aspects ofmethodological and applied questions are thereby welcomed including theories ofmicroeconomic, macroeconomic, meso-economic organizational and institutionaldecision-making, and more.13

To end up this preface, Table 1 is intended to explain the generalized method-ological worldview of the abstraction, application, and sustainable continuity of theprimal ontology of Tawhidi organic oneness and its representation in the meso-scientific construct of the world-system.

13Simon, H. (1987). “Decision making and organizational design”, in Pugh, D. S. (ed.),Organizational Theory, pp. 202–23, Penguin Books, Hammondsworth, Middlesex, England;Simon, H. (1957), Models of Man, New York, NY: John Wiley & Sons.; Feiwel, G. R. (ed.)(1989). Arrow and the Foundation of the Theory of Economic Policy. Macmillan, London,England; O'Donnell, R. M. (1989). Keynes: Philosophy, Economics and Politics, Macmillan PressLtd., London, England; Parsons, T. (1964). The Structure of Social Actions, The Free Press ofGlencoe, New York, NY.; Kahneman, D. (2013). Thinking, Fast and Slow. Farrar, Straus andGiroux. New York, NY.; Kahneman, D. & Tversky, A. (eds.) (2017). Choices, Values, andFrames. Cambridge University Press, Cambridge, England.

Preface xi

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xii Preface

The Critical Nature of this Work in the Field of IslamicIntellection

Indeed, the intellectual inquiry in this work in the field of critical examination of thepresently existing understanding of Islamic economics, finance, science, and societyis of seriously contrasting nature. That is not only due to the construction ofqur’anic scientific thinking by critical inquiry of what has prevailed in the absenceof the deeper understanding and its formalism in scientific thinking, ta’wil. Theproblem of the departure of the existing Muslim scientific program also owes to theinextricable embedding of so-called Islamic intellection into mainstream fields. Yetmainstream socio-scientific thinking stands for a great ontological and epistemo-logical re-thinking that would allow the emergent deeply analytical study and itsempirical viability of moral/ethical embedding in the socio-scientific inter-causal,evolutionary universe of endogenous systems and neurocybernetic.14

The unnecessarily overwhelming presence of shari’ah beyond its due com-monality with the Qur’an has caused the abandonment of the deeper andsocio-scientific analytical study of the Qur’an and its support by the sunnah inrespect of the generality and particulars of the world-system that Tawhid as lawexplains. The present work studies many such critical issues and problems thatcontrast the conceptualization and application by Tawhid as law from the legalisticsilence of shari’ah in all such deeply contextual studies of the world-system. Whilethe critical intellectual studies of Tawhid and the world-system will continue to riseabove the intellectually dormant field of shari’ah, yet the latter traditionalism willcontinue by sectarian long stay (madhab), the denial of the qur’anic practice ofta’wil in socio-scientific inquiry, and the undue impress of Wahabism and Salafismin this regard on the abandonment of qur’anic socio-scientific investigation (ta’wil).There is also the demeaning metaphysical illogicalness of Gnosticism in trulyqur’anic socio-scientific thought and sheer narrative studies of Muslim thoughtthrough the ages (Nasr, 2003).15 This state of oblivious Muslim intellectionrespecting study of Tawhid and the world-system must change as this bookadvocates by its erudition. Thus, the content presented here is for the world sci-entific community beyond being limited to Muslim readership.

Jakarta, Indonesia/Toronto, Canada Masudul Alam Choudhury

14Edel, A. (1970). “Science and the structure of ethics”, Neurath, O. Carnap. R. & Morris, C. (eds.)Foundations of the Unity of Science, Vol.II, Nos. 1-9, pp. 273–378, The University of ChicagoPress, Chicago, ILL.15Nasr, S. H. (2003). Science and Civilization in Islam, Islamic Texts Society, Cambridge, UK.Also published by Harvard University Press, Cambridge, MA, USA, 1987).

Preface xiii

Mesoscience

Inquiring the Micro-Ethical Endogenous Foundation of Aggregate EconomicWorld-System

Islamic Economics is neither a microeconomic nor a macroeconomic studyframed in these mainstream dichotomies. The moral and ethical foundation ofIslamic economics emerges from the possibility of symbiotic inter-causality at themesoscales of methodology, behaviour, applications, and continuity. Integratedtogether by methodological abstraction and applications, the resulting mesoscalephenomenological study presents a distinctive methodological worldview oforganic unity of knowledge. In the Qur’anic terminology this monotheisticworldview is referred to as Tawhid, the universal Law of ‘everything’16

“Meso-science implies there are some underlying principles that can unify dif-ferent disciplines, and all disciplines may be involved in contributing availabledisciplinarily specific knowledge at corresponding levels to revealing commonprinciples for meso-scales at all levels. A small change in the angle to view oldproblems could lead to a big progress in solving them.”17

Mesoscale herewith refers to a range of scale in between the micro- (element)scale and the macro- (system) scale and, within this range of scale, a characteristicstructure exists, namely meso-structure, featuring dynamic heterogeneity in spaceand time, which is critical to the performance of the system. Parameters at themesoscale are needed to bridge the mechanism at the element scale to the behaviorof the system. The objective of mesoscience is to develop a principle as general aspossible to make such a bridge for different levels of disciplines.18

The econometrics of mesoscience of Islamic economics does not question theappropriateness of mathematical usage in microeconomics and macroeconomics.Rather, the mesoscience question of intellectual discourse revolves around the

16Choudhury, M. A. (2012). “The ‘Tawhidi’ Precept in Science”, in MuzaffarIqbal (ed.) Studies inthe Islam and Science Nexus Volume I, Ashgate, London, Eng.17Springer Nature, Engineering (2019). “What is meso-science or mesosciance?” Switzerland18Huang, W. Li, J. & Edwards, P. (2018). “Mesoscience: exploring the common principle atmesoscales”, Natural Science Review, 5:3, pp. 321–326.

xv

ontological methodology in the construction and evaluation of the emergent eco-nomic models and their implications. Islamic economics as meso-economics has itsown distinct methodology and methods of abstracto-empirical formalism premisedin the monotheistic law of unity of knowledge arising out of the Qur’an. It is calledTawhid. This primal ontology of Islamic economics and mesoscience is treatedthroughout this text as the universal law in abstracto-empirical formalism.

xvi Mesoscience

Contents

1 Epistemic and Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Reconstruction of Economic Theory with Epistemic Grounding . . . . . . 2Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Postulates of the New Heterodox Theory of Ethico-EconomicsPremised in Unity of Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4The Generalized Model of Circular Causation Accordingto the Episteme of Unity of Knowledge . . . . . . . . . . . . . . . . . . . . . . . 4Monetary Perspectives in Islamic Economics as Mesoscience . . . . . . . 6Explaining Circular Causal Relations Between Micro-Money,Finance, and Real Economy (MFQ) . . . . . . . . . . . . . . . . . . . . . . . . . . 10Meso-Economic Formulation of Micro-Money Model in the EE(H)Version of the Islamic Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12The Formal Model of Micro-Money by Combining Expressions . . . . . 13Methodological Governance of Islamic Banks in the Meso-Micro-Money and Real Economy Relations . . . . . . . . . . . . . . . . . . . . . . . . . 15Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2 Ontoloical Foundation of the Theory of Economtrics in Unityof Knowledge by Inter-Causality . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Inter-Causality (Circular Causation) in the Wellbeing Function . . . . . . 19TRUTH and FALSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Consciousness and Ethical Endogeneity . . . . . . . . . . . . . . . . . . . . . . . 21Initiating Some Critical Concepts in the Building of the Econometricsof Circular Causation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22The Principle of Circular Causation in High Thinking . . . . . . . . . . . . . 24The Positive Wellbeing Criterion and Negative WellbeingFunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Circular Causation or Inter-Causality from the Ontological Coreof (X, S) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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The Universality of (X, S) in Pervasive Consciousnessof Unity of Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Consciousness Modeled in Econometrics of Inter-Causality . . . . . . . . . 28The Nature of Morality/ethics in Econometrics of Mainstreamand Circular Causation Fields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Econometric Concerns Underlying Circular Causation TheoryVersus Mainstream Economic Theory . . . . . . . . . . . . . . . . . . . . . . . . 30Generalized Economic Evolutionary Equilibrium Causedby Circular Causation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Preferences in Micro-Foundation of Macroeconomics . . . . . . . . . . . . . 35Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

3 Profit-Sharing Versus Interest Rate in Islamic Economicsas Mesoscience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Contrasting Mainstream Islamic Economics with the TawhidiMethodological Worldview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Formalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43The Case of Debt, Riba, and Profit-Sharing in the Formal Model . . . . 46Some Conceptual Issues Relating to Circular Causation RelationsBetween the Variables {R/I, R, F, R/D, h}[h] . . . . . . . . . . . . . . . . . . . 46Econometric Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Appendix: Empirical Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4 Content Approach to Analytics of Islamic Banksby Meso-economics of Inter-causality . . . . . . . . . . . . . . . . . . . . . . . 75Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75Econometrics (Quantitative) of Content Analysis (Qualitative)of Islamic Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76Multivariate Wellbeing Model of Trade and Interest Rates . . . . . . . . . 78The Theoretical Implication of Tawhid as Monotheistic Onenessin the Econometrics of Circular Causation and Wellbeing . . . . . . . . . . 81Consequences of Misspecification of Objective Criterion in IslamicInstitutional Policies for the Ummah (Muslim Comity of Nations) . . . . 82Empirical Inference of IDB’s Macroeconomic Failure of IslamicParadigm Shift of SDG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91The Wellbeing Function is Estimated Subject to the CircularCausation Equations in their Log-Linear Forms . . . . . . . . . . . . . . . . . 91References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

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5 Objective Functions of Islamic Bank Bangladesh: A Critiqueof Islamic Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Objective and Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95A Critical Review of IBBL in the Light of the Theoryof Micro-foundation of Macroeconomics and Its EconometricFeatures as the Truly Islamic Methodologically EmbeddedMethodical Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97IBBL Mission and Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Absence of Modeling the Micro-foundation of Macroeconomicsand Thereby the Wellbeing Goal in IBBL . . . . . . . . . . . . . . . . . . . . . 99A Prescribed Model of Endogenous Inter-causal Dependencefor Asset Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99The Market Perspective of IBBL ‘Business Model’ . . . . . . . . . . . . . . 104Critical Examination of IBBL Data . . . . . . . . . . . . . . . . . . . . . . . . . . 106Circular Causation in IBBL Financing of Agricultural Sector,2016–2017 (Millions of Taka) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

6 The Meso-Economics of the Wellbeing Criterion . . . . . . . . . . . . . . 115Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Failed Understanding of the Wellbeing Concept in the MuslimWorld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118A Critical Review of Sen’s CF-Theory of Wellbeing . . . . . . . . . . . . 119

Problems of Islamic Wellbeing Formalism . . . . . . . . . . . . . . . . . . . . . 120Space–Time Concept of Evolutionary Wellbeing in the Literature . . . . 122Concept of the Wellbeing Function in Space–time Structureof Economic Reasoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124The Concept of Evolutionary Wellbeing in {Knowledge, Space,Time} Dimensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125Amartya Sen’s Wellbeing Form in CF-Theory in Terms of PervasiveComplementarities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125The New Methodological Worldview of Wellbeing and DevelopmentFuture with the Episteme of Unity of Knowledge . . . . . . . . . . . . . . . . 126Contrasting Tawhidi Epistemic Methodological Worldviewto Neoclassical ‘Islamic’ Economics . . . . . . . . . . . . . . . . . . . . . . . . . 129Empirical Example of Quantitative Estimation of the WellbeingCriterion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130h-estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Computing Socio-Economic and Islamic Financing Related h-valuesOver Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Contents xix

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134Appendix: The IIE-Feature of Wellbeing Criterion as Extensionof Roger Penrose’s Complexly Inter-Connected Triangle (Octagon)by the Methodology of Organic Unity of Knowledge (Tawhid)across ‘Everything’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

7 Imaging the Imaginary Events in Evolutionary LearningTrajectories of Wellbeing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139Analytical Properties Along the Trajectory of History HH . . . . . . . . . . 141Generalized Wellbeing Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143An Example of Continuous h-induced Simulation . . . . . . . . . . . . . . . . 144Evolutionary Learning Property of Wellbeing Functionin Its Exponential Compounded Wrapping . . . . . . . . . . . . . . . . . . . . . 146Spatial Domain Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149Partial Elasticity Coefficients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Input–Output Matrix Format of Generated Data . . . . . . . . . . . . . . . . . 152Visualisation of Matrix Data Conversion into 2-D and 3-D . . . . . . . . . 154Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

8 Meso-economic Framework of Decision-Making . . . . . . . . . . . . . . . 159Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159Introduction: Some Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160Evolutionary Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160IIE-Perspective in Evolutionary Learning . . . . . . . . . . . . . . . . . . . . 163Wellbeing Criterion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163The Analytical Nature of Endogenous Opposed to ExogenousEffects in a Firm’s Production Function . . . . . . . . . . . . . . . . . . . . . 165

Formalism of the Evolutionary Learning Wellbeing Functionin Unity of Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165A Generalized Form of the Structure and Functions of EvolutionaryLearning Organization, Institution, and Social Order . . . . . . . . . . . . . . 167An Example of Evolutionary Learning by Unity of Knowledge:The Islamic Social Wellbeing Criterion of the Corporation . . . . . . . 169How the Evolutionary Learning Parameters of Knowledge-Flows{h} are Generated and Assigned? . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Dynamic Preference Formation in Islamic Corporate Relations . . . . . . 171Questions Relating to Islamic Evolutionary Learning Model ofOrganizational Behaviour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

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9 Endogenous Monetary Transmission by Meso-EconomicModel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177Ontological Effect of Money and Real Economy Variables . . . . . . . . . 177Monetary Policy by Monetary Transmission Mechanismin Meso-Economic Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179Monetary Transmission Model of Islamic 100% ReserveRequirement Monetary System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182Monetary Transmission in the 100% Reserve RequirementMonetary System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

A Focused Review of the Literature . . . . . . . . . . . . . . . . . . . . . . . . . . 184Twarruq as an Example of Micro-Money in Islamic FinancialMobilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186Empirical Results of Islamic Monetary Transmission Model for BankIndonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187Results of Data Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188Simultaneous Ordinary Least Square (OLS) . . . . . . . . . . . . . . . . . . 188Vector Autoregressive (VAR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Discussion of the Monetary Transmission Model of [M,Sp,Q’](h) . . . . 189Empirical Analysis of the Monetary Transmission Model Without‘h’-Parameter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190Monetary Transmission Model as Linkage Model of the MonetarySector with the Three-Sector Real Economywith h-parameterization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193Wellbeing Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195Statistical Analysis: Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196Wellbeing Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

10 Money, Debt, Interest, and Real Economy . . . . . . . . . . . . . . . . . . . 201Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201The Analytical Approach of Investigation . . . . . . . . . . . . . . . . . . . . . 202The Existing State of Islamic Financial Instruments . . . . . . . . . . . . . . 204Tawhidi Ontology of Unity of Knowledge and the Formulationof the Generalized System of Meso-Relations Involving Money,Real Economy, Debt, and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 207Monetary Policy Emanating from (M, Sp) ComplementaryRelationship via the Circular Causation Relations . . . . . . . . . . . . . . . . 211Monetary Transmission in the 100% RRMS . . . . . . . . . . . . . . . . . . . . 212Trade (T(h)), Gold (G(h)), Monetary M(h), Spending (Sp(h)), InterestRate (i) and Debt (D) Interrelationships . . . . . . . . . . . . . . . . . . . . . . . 215

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Stability of Exchange Rate of Currency in Circulation in 100%RRMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

11 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227

xxii Contents

List of Figures

Fig. 1.1 Exchange evaluation of events in knowledge, space, timedimensions across history HH. . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Fig. 1.2 The generalized monotheistic ontological model constructionin unity of knowledge particularized to inter-causality betweenmicro-money, finance, and real economy (MFQ) . . . . . . . . . . . . 11

Fig. 2.1 Ontological sensitivity of (X, S) via {h} in abstracto-empiricalmodel construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Fig. 3.1 Interactive-integrative endogenous variables in circularcausation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Fig. 3.2 Interactive, integrative, and evolutionary nature of S(h) . . . . . . . 48Fig. 3.3 Construction of the complex nature of interactive, integrative,

evolutionary (IIE) History of learning events sustained inknowledge, space, and time dimensions as by inter-causalvector of endogenous variables, {℘, r/i, R, F, R/D,h}[h]t . . . . . . 49

Fig. 3.4 Evolutionary convergences along the Event-History{HHp(S(h))} . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Fig. 3.5 Transcendence of intra-systemic results across sustainabilityof knowledge, space, and time dimensions . . . . . . . . . . . . . . . . . 50

Fig. 5.1 IBBL does not have any particular precepts in its Missionand Vision that can be identified as especially Islamicin origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Fig. 5.2 Comparative views of Corporate Governance: Islamand the other perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Fig. 5.3 A snapshot of blueprint for IBBL (Islamic Banks and IDB)‘Business Model’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Fig. 6.1 TSR: The universal and unique grand design of TawhidiEpistemic Relations in Wellbeing . . . . . . . . . . . . . . . . . . . . . . . . 127

Fig. A6.1 Extending Penrose’s triangle (octagon) by the formalmethodology of unity of knowledge of compoundedevaluation of the wellbeing objective criteria . . . . . . . . . . . . . . . 136

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Fig. 7.1 Imaging the imaginary into the only nature of the worldas the phenomenology of real-world . . . . . . . . . . . . . . . . . . . . . . 140

Fig. 7.2 Compounded historiographies of evolutionary learningpaths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Fig. 7.3 Intra- and inter-systemic compounded wrappingsof evolutionary learning in historiography . . . . . . . . . . . . . . . . . 145

Fig. 7.4 Visualisation of sensitivity of elasticity coefficienton sectoral GDP Data in 2-D Surface . . . . . . . . . . . . . . . . . . . . . 153

Fig. 7.5 Sectoral contribution in 2-D surface . . . . . . . . . . . . . . . . . . . . . . 155Fig. 7.6 State of sectoral linkages in 3-D visual display—between

manufacturing and other sectors . . . . . . . . . . . . . . . . . . . . . . . . . 156Fig. 9.1 Monetary transmission in 100% reserve requirement

monetary system of (M-F-RE)[h endogenous complementaryrelations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Fig. 10.1 Compound functional interrelations between money, realeconomy, debt, and interest rate according to Tawhidiworldview of unity of knowledge . . . . . . . . . . . . . . . . . . . . . . . . 205

Fig. 10.2 The evolutionary learning History of events by Tawhidiunity of knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

Fig. 10.3 Monetary transmission in 100% reserve requirement monetarysystem of (M-F-RE)[h] endogenous complementaryrelations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

Fig. 10.4 Complex cybernetic disaggregation of wellbeing indexes . . . . . . 219Fig. 11.1 The extensive embedding by intra- and inter-causality

of the generalized world-system . . . . . . . . . . . . . . . . . . . . . . . . . 225Fig. 11.2 The property of intra- and inter- embedded system

as non-Cartesian geometrical fractal . . . . . . . . . . . . . . . . . . . . . . 226

xxiv List of Figures

List of Tables

Table 2.1 Outline of the ontologically induced econometric modelin circulation causation and permanent endogeneityof knowledge-induced variables of Truth and Falsein their respective evaluation criteria . . . . . . . . . . . . . . . . . . . . . 22

Table 2.2 Formalizing the underlying model of Table 2.1 . . . . . . . . . . . . . 23Table 4.1 Approvals by entities and modes of financing ($ million) . . . . . 88Table 4.2 Computing variable specific parameterised weights . . . . . . . . . . 89Table 5.1 Sector-wise general investment, 2016–2017 (percentages

of total investment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107Table 5.2 Mode-wise investment 2016–2017 (percentages of total

investment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108Table 5.3 Percentage distribution of components of Agricultural

Investment, 2016–2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108Table 5.4 Cross-sectional conversion of surveyed data

as in Table 5.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108Table 6.1 Statistical data and averaged h-values, examining

the performance of Islamic banks in Indonesia by their ruraland urban sector operations on wellbeing, 2005–2014 . . . . . . . . 133

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Chapter 1Epistemic and Economics

Abstract The theme of ethico-economics is introduced in terms of the interac-tive, integrative, and evolutionary learning properties of the epistemology of unityof knowledge. The attenuating methodology yields a unique and universal model ofcircular causation between the selected complementary variables. The circular causa-tion model conveys the empirical possibility of ethico-economic problem-solving inthe context of the epistemology of unity of knowledge. The empirical perspectivesof epistemic and economics and the conforming formalism of unity of knowledgeopen up a vast coverage of policy-theoretic and strategic studies that contest withand provide distinctively different results and their explanations in the framework ofheterodox economic theorizing involving ethico-economics.

JEL classification B41 · B52

Background

The classical works in economic thought had undertaken substantive inquiry in thefield of epistemic and economic theory. It was the preoccupation of the AustrianSchool of Economics under the influence of Ludwig von Mises.1 Yet before thistime, both Adam Smith2 and John Maynard Keynes3 were great epistemologists intheir ideas to instil ethics in economic theory. Gunnar Myrdal4 was a sociologicalthinker in theorizing economic development by the concept of the wider field ofvaluation. In recent times G.L.S. Shackle5 has questioned the validity of neoclas-sical economic theory in respect of economic reality. The contemporary works of

1von Mises (1976).2Smith (1984).3O’Donnell (1989).4Myrdal (1958).5Shackle (1972).

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_1

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2 1 Epistemic and Economics

Tony Lawson,6 George Soros7 and Petr Sztompka8 have opened up new economicthinking along lines of new ontological perspectives of economic thought, in refor-mulating financial theory of reflexivity of decision making, and formulating Marxistmethodology within a Hegelian dialectical approach to social becoming. Lawsonand Pesaran9 remark that the structure of economic theory has weakened on the faceof its structural problems of economic methodology.

Paradoxically, the ontological and epistemological approaches in the reconstruc-tion of economic theory and economic thought has lost its tradition in recent timesrequiring fresh inquiry.Yet it is argued that,with the continued instability of economicand financial futures the orthodox and mainstream nature of economic prediction inan optimal closed social universe has failed to stand up to critical realism. On thisissue writes Roy Bhaskar10: “………. It is thus natural to generalize the problem ofinduction, involving influence from the past, to the future, to that of ‘transduction’,inference from closed to open systems”.

Reconstruction of Economic Theory with EpistemicGrounding

It is therefore necessary once again to rethink economic andfinancial theory.This noteexplores the new epistemological possibility within a theory of pervasive comple-mentarities between ethically determined choices of social possibilities. Themeaningof unity of knowledge is gained from the property of such pervasive complementari-ties between variables that represent the attribute of continuity by participation. Theemergent pervasive attribute of unity of knowledge by complementarities and partic-ipation between agents and their representative variables is the meaning of ethicsin decision-making, resource allocation, and dynamic preferences of economic andfinancial behaviour.

The emergent theory we are constructing is thereby contrary in epistemology andstructure of explanation to all of economic theory that premises on the postulates ofresource scarcity, and thereby on the economic rationality properties of pre-orderingof preferences, perfect information, marginal substitution, methodological individ-ualism of self-interest, and competition. Wherewithal, in the emergent heterodoxeconomic theorizing the epistemological question invokes the social embeddingof ethics as evolutionary learning behaviour arising from the postulates of unityof knowledge. The episteme of unity of knowledge by the continuous circularityof cause and effect between complementary goods as the sign of sustainability is

6Lawson (1997).7Soros (1998).8Sztompka (1991).9Lawson and Pesaran (2009).10Bhaskar (1994).

Reconstruction of Economic Theory with Epistemic Grounding 3

the property of evolutionary learning. It causes dynamic preferences to replace pre-ordered preferences as datum.Dynamic preferences alongwith evolutionary learningin unity of knowledge cause continuous reproduction of resources. This reinforcesthe complementarity and continuous repetition of learning in unity of knowledge.

In the end, neither optimal states nor steady state equilibrium can exist. Theygive way to non-optimal dynamics in evolutionary learning equilibriums. As pointedout by Amartya Sen,11 the combination of ethics as evolutionary learning betweencomplementary possibilities, negation of the assumptions of economic rationality,and deontological preference maps together define the new structure of economicthinking contrary to mainstream economics. Such emergent novelty of new ontolog-ical economic theory forms the order of epistemic and economics in today’s needto stem the tide of global financial instability and unpredictability in the optimumeconomic modeling (Lawson, 2012; Choudhury, 2014).

Objective

The objective of this chapter is to expound briefly the outlook of the heterodoxeconomic thinking in the direction of epistemic and economics to undertake thefollowing explanations regarding such a theory: The evolutionary learning characterof the emergent theory of the epistemology of unity of knowledge and its inductionof the unified world-system by the complementary nature of choices involves theformalism and study of a nexus of inter-causality between the choices. Such inter-causality conveys the methodological nature of social and economic embedding bycause and effect.

Thereby, a system of circular causation equations between the inter-causal vari-ables is formalized. Such a system allows for evaluation by repeated estimation andsimulation of the first round of estimated coefficients to correct deficiencies of nega-tive relationship between the variables into less negative to positive reconstruction.The negative relations denote marginal rates of substitution between the variablesduring any given process of evolutionary learning. Positive relations denote comple-mentarities. The result then is sensitivity of changes in coefficients to policy-theoreticand institutional strategic issues. This chapter explains the interactive, integrative,and evolutionary nature of evolutionary learning equilibriums underlying marketand institutional interaction, convergence, and dynamic continuity via the epistemeof participation and change. The discursive nature of preference formation embeddedin the decision-making induced by the episteme of unity of knowledge along withall this conveys the meaning of ethico-economic holism.

11Sen (1992).

4 1 Epistemic and Economics

Postulates of the New Heterodox Theoryof Ethico-Economics Premised in Unity of Knowledge

The postulates upon which the new structure of epistemic and economics is basedare the following ones.

1. None of the assumptions of the axiom of economic rationality exists.2. The axiom of economic rationality is replaced by the axiom of unity of

knowledge.3. The concepts of opportunity cost and marginal rate of substitution in resource

allocation are replaced by evolutionary learning processes in resource allocation.4. All variables in resource allocation are interactively integrated in pervasive

complementarities and thus form endogenous relations.5. Variables are induced by unity of knowledge as episteme causing preferences to

be dynamic.6. Steady-state equilibrium and optimal resource allocation are replaced by evolu-

tionary learning equilibriums and non-optimal states of learning in unity ofknowledge.

7. The system treatment of inter-causal relations between variables leads into aunique simulation model of ethico-economic wellbeing objective function.

The Generalized Model of Circular Causation Accordingto the Episteme of Unity of Knowledge

The above-mentioned postulates yield the following generalized model of circularcausation as the result of interactive, integrative, and evolutionary learning processesof inter-variable endogenous relationship with pervasive complementarities:

Evaluation of the Social Wellbeing Function in unity of knowledge, θ = f(x(θ)),with vector variables induced by knowledge-flows over evolutionary learningprocesses. Knowledge-flows in accordance with the ranked degrees of complemen-tary relations between the variables are denoted by {θ} over processes of learning.The term ‘evaluation’ means firstly to estimate followed by simulation of the firstround estimated coefficients as deemed necessary for improving the degrees ofcomplementarities between the variables in the light of policy-theoretic and strategicissues.

The social wellbeing function is evaluated by the system of circular causationrelations as follows:

xi(θ) = fi(xj(θ)

), i, j = 1, 2, . . . ; x(θ) = {x1, x2, . . .} (1.1)

θ = f(x(θ)) (1.2)

The Generalized Model of Circular Causation … 5

Observations for {θ} are calculated as ranks by one such formula in a scale of 1–10 by columns of the complementary variables: [(10/x*)*xc]; ‘xc’ denotes column(c) values. 10 being the highest ranked θ-value corresponding to x*. The averageθ-value across all the variables by columns is determined by,

(1/m)∑

c

[(10/x∗) ∗ xc

] = Avg{q}c = q (1.3)

Examples

1. Microeconomics: dynamic preference formation

Let ℘s(θ) denote dynamic preference (knowledge − induced) of the sth individual.(1.4)

Collective dynamic (knowledge-induced) preference of a group formed byinteraction I, integration I within any given process ‘p’ is given by,

∪′ ∩′ {℘s(θ)}p. (1.5)

This is a meso-economic representation of preference formation in the ethicallyinduced aggregate context.

Dynamic evolutionary preferences arising from interaction ‘I’ and integration ‘I’are denoted by variations in {θ} over processes of evolutionary learning as shownby,

(d/dθ)[∪′ ∩′ {℘s(θ)}

]p > 0, signifying continuity over knowledge − flows {θ}

conveying unity of knowledge across evolutionary learning processes ′p′.(1.6)

By a continuous mapping between {θ} and its induced variables x(θ) we obtainsimilar results for such variables induced by dynamic preferences as:

{xj(θ);℘i(θ)} ⇔ {∪I ∩I xj(θ); {∪I ∩I ℘i(θ)} (1.7)

⇔ means circular causation formed by recursive relations.The circular causation system can be readily written down in reference to

expressions (1.1) and (1.2).The induction and quantitative implication of θ-values as the degree measuring

existing unity of knowledge and constructible degrees of unity of knowledge isthe central analytical representation of episteme of embedded unity of knowledgebetween the selective variables. θ-values in the system of inter-causal relational equa-tions between the endogenous x(θ)-vector, as in Eqs. 1.1 and 1.2, define the meso-aspects of the micro-ethical embedding in the aggregate modeling of an ethicizing

6 1 Epistemic and Economics

economy. The resulting ontologically induced and analytical formulation of the inter-active, integrative, and evolutionary (IIE) systemof inter-causal relations between thex(θ)-variables form the wellbeing evaluation system of the meso-economic approachwithin the context of mesoscience of unity of knowledge. It forms the most centralpremise of the primal ontology ofmonotheistic oneness, Tawhid as Law in theQur’anand sunnah (Islamic foundation).

2. Macroeconomics: Interrelations between money, finance, and real economy

Proceeding with M denoting quantity of money; F denoting finance; Q denoting realoutput; and T denoting endogenous technology we obtain,

Evaluate θ = f(M,F,Q,T)[θ] (1.8)

Subject to, circular causation between {M,F,Q,T}[θ], as in the case of Eqs. (1.1)and (1.2).

Policy implication of the macroeconomics of money, finance and real output rela-tions is that, complementarity between these variables by way of their circular causa-tion as endogenous relations cause continuous expansion in the output multiplier.Output is accentuated by the incidence of endogenous technology, (T(θ)). Thereby,the interactive and integrated circular causal relations between M(θ), F(θ), Q(θ),T(θ) cause extended price stability, increasing employment while denying the tradi-tional concept of full-employment real output, and decreasing the rate of interestuntil it is phased out in the case of full complementarity between the given variables(Choudhury 2015).

Monetary Perspectives in Islamic Economics as Mesoscience

Both mainstream economics and its submissive following by so-called ‘Islamic’economics today treat money as aggregate macroeconomic medium of valuation ofexchange of goods and services. The latter types of economic variables are alsotreated as macroeconomic entities. Exceptionally though in mainstream economicthought, the Austrian monetary tradition12 and a certain feature of the QuantityTheory of Money in terms of the equation of exchange13 have studied monetaryrelations with the real economy and spending in terms of what is referred to asequation of exchange. In this equation, the nearly exact value of spending and thequantity of money can be obtained in terms of the micro-units of money to matchthe spending context of valuation of real sector projects. In other words, such anequation of monetary-real sector valuation by identity of relations conveys the factthat, the quantity of money in circulation is equivalent to the correct quantity and

12Yaeger (1997).13Friedman (1989).

Monetary Perspectives in Islamic Economics as Mesoscience 7

H E(M,Q,S,k,θ θ)[ ] H con�nuity

Fig. 1.1 Exchange evaluation of events in knowledge, space, time dimensions across history HH

valuation on either sides of the exchange equation. Thus the quantity of moneypursues the volume of spending in terms of the exchange value of goods and services.The equation of exchange implies this nearest-case of equality in money-real sectorvaluation in both cases of atemporal and intertemporal valuations and flow of moneyas economic species. Suchmarket exchanges imply that, the project-specific spendingwhile matching the quantity of money in circulation fits the spending in projects.Money and spending sides of the exchange equation are closely interdependent. Insuch an equation of exchange, the monetary exchange context of valuation and thequantity valuation of money can equate exactly or with a difference in the valuationof projects by the extent of the speed of monetary circulation. Such projects can beof real goods and services, and of financial assets. The extended valuation conceptinvolves intertemporality. In the meso-economic argument, especially as explainedby the inter-relational concept between money circulation and spending in economicprojects, the ethical binding regarding the host of conscious choices of projects andthe entire gamut ofmoral/ethical outcomes of real sector valuationsmatter. The inter-causal relations in this respect configure the interactive, integrative, and evolutionarylearning spaces of a process-oriented historical nature.

In the above-mentioned inter-causal relations circularly connecting monetarycirculation (M), real sectoral project output (Q) and spending (S), the degree ofexactness of exchange valuation is denoted by the velocity of money circulationacross transactions (k). The moral/ethical elementsare all induced by the θ-inducedknowledge-flows. Thereby, all the valuation elements along with the centerpieceof θ-induction can be explained by Fig. 1.1. Such valuation events occur continu-ously both in the atemporal case (intra-system), and intertemporally (inter-systems)at continuous knowledge-induced (thus by sustainability of consciousness). Thereby,process-oriented evaluation event points of E(..) sustain themselves across the lengthand breadth of history HH.

The meso-economic implication of the continuously knowledge-induced moneyand real sectoral activity implies the sustained existence of inter-causality in theelements of the vector, x(θ) = {M, Q, S, k, θ}[θ]. This kind of inter-causal dynamicsbetween the variables caused by the conscious existence of θ-values is the distinctivenature of meso-economics of money and real economy in Islam. It is a significanttheoretical and applied issue concerning the search and discovery for new method-ological worldview, now based on the endogenous meaning of unity of knowledgeby inter-causality between the variables.

Furthermore, the Islamic concept of market valuation and the use of money in realeconomic activities fetch their values in the midst of market exchange. The microe-conomic and macroeconomic nature of the vectors of variables and their inter-causalrelations evaluate the ultimate objective of wellbeing under the precept of unity

8 1 Epistemic and Economics

of knowledge. This episteme is contextual to the moral worldview of monotheismplaying its role in markets and institutions. Thereby, simulation of the θ-inducedvariables generate corresponding policies to promote the transformation into pureexchange. Thereby, the endogenous interrelations between markets and institutions,thus microeconomic and macroeconomic variables, need to be noted. The under-lying aggregation problem is thereby the essential nature of meso-economic theory.Thereby, in the resulting case of meso-economic theory institutions and marketsinteract to determine the meso-preferences by interactions, integration, and evolu-tionary learning. Such preference structure was formalized earlier in the section ondynamic θ-induced preference formation.

Meso-economic theory based on the episteme of inter-causality arising from thepremise of unity of knowledge in Fig. 1.1 gives rise to a special system of organicinterrelations between money, finance, and real goods and services in the light ofthe precept of unity of knowledge. Interrelations between money circulation andreal sector project-wise spending would thereafter continue on up to the limit ofperfect equivalence in the exchange equation with k = 1.14 In every other case of alearning equation of money-spending relationship, the adjustment between moneyand the real economy would continue. Project-specific spending would then be shortof perfect equivalence between the quantity of money and the value of spending. Forsuch a case of less than perfect equivalence, the continuing interaction, integration,and evolutionary learning would hold for 0 < k < 1. Imminent inter-causality betweenthe variables of the project-specific exchange equations would continue in their IIE-learning processes between diversities of organismic relations. Such inter-causalrelations that arise along the historical path of HH at every event principally yield thesymbiotic meaning of unity of knowledge in the Qur’anic context of the organicallypaired universe.15

Such a foundational ontology of unity of knowledge that money, finance, and realeconomic entities display is a particular problem of meso-economic theory that istaken from themidst of the general and specific theories of themonetary phenomenonin the context of markets and institutions according to which the organic epistemicrelational meaning of morality and ethics arise. The representative θ-values therebycharacterize the ethicizing nature of unity of knowledge by inter-causal relationsbetween goods, services, market exchange, and the nature of their exchange relation-ship in the midst of the monetary and financial flows. Accordingly, meso-economictheory presents themicro-project specific nature ofmoney, finance, and real exchangeby inter-causal endogenous relations. The organic nature of a paired universe repre-senting the pervasively inter-causal complementarities forms the distinctive epis-temic premise of the methodology of organic principle of monotheistic unity ofknowledge. The emanating theory is applicable to both the atemporal case of intra-system organic relations and the intertemporal case of inter-system organic relations.Mesoscience basis ofmeso-economic theory characterizes the study of both of paired

14von Mises (1976).15Qur’an (36:36): “Exalted is He who created all pairs—from what the earth grows and fromthemselves and from that which they do not know”.

Monetary Perspectives in Islamic Economics as Mesoscience 9

complementarities as being probabilistic in the event space of knowledge, space, andtime dimensions across events that define the entire history, HH.

In the context of the above explanation of the relational organic idea of morality,ethics, and the monetary function interrelating with finance and real goods andservices in market exchange, the totality of the events shown in Fig. 1.1 forms theethico-economic system (EE(θ)). We thereby define the ethico-economic system inits generalized form, and in the specific case of Islamic monetary relations in EE(θ)as the topological relationship of the probabilistic universe at all event points in HH.Formally we write, EE(θ) = {E(θ, x(θ), t(θ)}. EE(θ) is evaluated by the objectivecriterion of organic interrelationship in unity of knowledge. The objective criterion issymbolized by the wellbeing function, W(E(θ)) with dW/dθ > 0. The symbols in theparticular case of the circular inter-causal relationships betweenmoneyMi(θ), financeFi(θ), and real project-specific activity Qi(θ) variables are explained as follows by thechoices consciously governed by the episteme of unity of knowledge. In the case ofIslamic ethico-economics such choices are governed by the monotheistic worldviewof organic unity of knowledge between the good things of life while avoiding theharmful choices.16

W(θ) = W(MiQi,Fi,t)[θ]; dW/dθ = �[∂W/∂x(θ)] · (dx(θ)/dθ) > 0 identically(1.9)

W(θ) denotes the wellbeing criterion as represented by circular causation relationsbetween the inter-causal variables for the i-projects.

xi(θ) = {Mi(Fi,Qi, t)[θ], Fi, (MiQi, t)[θ], Qi(Mi,Fi, t)[θ]} (1.10)

‘i’ indexed with the variables represents projects according to the broad definitionof project given above. The grouping together of ‘i’-projects may be denoted by ‘pr’.At times we will drop the suffix ‘i’ and carry on to denote projects all the same inthe following formalization.

The function of {θ} as knowledge variable is based on the probabilistic natureof events. This conveys the meaning of incompleteness and evolutionary learningover points of time with the property of ‘nearest’ exact evaluation of events wherethe velocity of money circulation is exactly attained, i.e. k = 1.17 Furthermore, the‘nearest’ exact evaluation in the probabilistic sense with the ontological premise ofunity of knowledge in the EE(θ)-definition establishes the primal condition, i.e. {θ}∈ (�, S). � denotes the foundational ontology of unity of knowledge; S denotes the

16Qur’an (14: 24–26): “See you not how Allah sets forth a parable?—A goodly word as a goodlytree, whose root is firmly fixed, and its branches (reach) to the sky (i.e. very high). 25. Giving itsfruit at all times, by the Leave of its Lord and Allah sets forth parables for mankind in order thatthey may remember. 26. And the parable of an evil word is that of an evil tree uprooted from thesurface of earth having no stability”.17Choudhury (2012).

10 1 Epistemic and Economics

primal mapping that derives {θ} from �. Hence, (�, S) forms the primal ontolog-ical tuple of knowledge derivation in EE(θ). In the probabilistic sense, {θ} denotescontinuous learning in reference to the ontological premise of (�, S)—organic unityof knowledge of the monotheistic paired universe of ‘everything’.

The meso-economic nature of the knowledge-variable {θ} and of the θ-induced{xi(θ)}-vector implies that, these variables cannot be aggregated in any sense ofmicroeconomic preferences of economic rationality and by the macroeconomicaggregate variables concerning money and real economy. Thereby, the macroeco-nomic version of the quantity theory of money, as known, cannot be applied in anyacceptable concept of aggregating the microeconomic money and real economicvariables. The theory of monetary aggregates of macroeconomics and its economicconsequences is thereby not conformablewithmicro-monetary concept and its impli-cations in the theory of monetary transmission according to the quantity theory ofmoney, prices, and the real economy.

Explaining Circular Causal Relations BetweenMicro-Money, Finance, and Real Economy (MFQ)

Islamic Ethico-Economy (EE(θ)) takes its birth in the primal ontological premise ofmonotheistic unity of knowledge as the Universal Law.18 EE(θ) is inextricably estab-lished in the primal ontology of monotheistic unity of knowledge and its method-ological conception in the generality and details of the world-system. The empir-ical methodology andmoral-material embedded sustainability continues in recursivelearning way across HH. The underlying properties of the process-oriented natureof the methodological worldview of monotheistic unity of knowledge presents adynamic world-system based on interaction, integration, and evolutionary learning(IIE-learning processes) between the good things of life as life-fulfillment needs. Thisontological premise is foundational in theoretical and applied contexts of EE(θ). Itsdegrees of evaluation of organic unity of inter-variable causality are evaluated bythe objective criterion of the well-defined criterion (Arabic term for wellbeing ismaslaha).

The IIE-learning properties and the objective criterion of evaluating all detailsof EE(θ) indeed forms a socio-scientific inquiry. The meso-economic problem ofevaluation of the wellbeing criterion by organic circular causality relations answersthe following questions: (1) what are the foundational axioms upon which a consis-tent and authentic methodological worldview can be erected? (2) How does sucha methodological worldview apply to the universal and particulars of a general-ized system that characterizes various fields of meso-socio-scientific inquiry? Thesecentral questions are incapable of answers and the meso-socio-scientific analysisis impossible in the existing so-called ‘Islamic’ economics and its premise that isconstricted by the juristic understanding of shari’ah and opinions (fatawa) based

18Choudhury and Rahim (2016).

Explaining Circular Causal Relations Between … 11

[ S] { } x( ) [see expression 1.2] End of process 1 Beginning of process 2 etc. con�nuity [ ,S] { ,x( )} Evalua�on of by recalling the method

Primal epistemology Wellbeing index of process 1 recursively con�nuous ontology of unity of Subject to the processesof unity of knowledge Circular causa�on ontologicallyknowledge and in world- Rela�ons in { ,x( ),t( )}: ending in system Valua�on W(M,F,Q,t)[ ] [ ,S]

[see expression 1] Subject to the

circular causa�on rela�ons: M( ) = f1(F,Q,t)[ ] F( ) = f2(M,Q,t)[ ] Q( ) = f3(M,F,t)[ ]

Quan�ta�ve wellbeing index = F(M,F,Q,t)[ ]

Fig. 1.2 The generalized monotheistic ontological model construction in unity of knowledgeparticularized to inter-causality between micro-money, finance, and real economy (MFQ)

on shari’ah as ways of Muslim sectarian understanding.19 The profusion of juristicrules embodies thewhole of shari’ah of present days, marking itsmadhabi (sectarian)derivation over the ages of Muslim history.20

Tawhidas the law of unity of knowledge by inter-causal pairing (monotheisticpairing) between ‘everything’ contrasts shari’ah oppositely. It is important to notehere that, the entire system of knowledge-induced learning processes of Figs. 1.1and 1.2 along with their properties and most extensive analytical subtleties of ‘every-thing’ between the heavens and the earth, as the Qur’an declares, comprises the mostsubstantive Qur’anic meaning. The paired world-system of unity of knowledge andits induction on being and becoming form the methodology as primal ontology ofqur’anic monotheism and the world-system. Thereby the generality and details ofthe world-system and its evaluation by the wellbeing objective criterion of unity ofknowledge are derived epistemologically. Thereafter, themeaning of sustainability ascontinuity of the Tawhidi methodologically induced IIE-learning processes abide inthe endlessness of knowledge, space, and time dimensions. About such evolutionarylearning entirety the Qur’an declares (2:156): “We belong to Allah and to Allah weshall return.” Such is the overwhelming reality from and to the primal ontology ofTawhid as law of unity of knowledge. This inter-causal wholeness processes throughthe world-system by its methodological abstraction and applications. They denotethe Signs of Allah (Ayath Allah).

In the exogenously framed model of causal relationship between money, finance,and the real economy (MFQ(θ)), the circular causation expression of the x(θ)-vectoris unknown as an abstracto-empirical analytical system explaining pervasive unity ofknowledge (complementarity, organic inter-causality) between the moral and ethicalchoices. For instance, inmacroeconomicsmonetary policy is treated as an exogenous

19Mahomedy (2013).20Kamali (1991).

12 1 Epistemic and Economics

variable. Finance denoted by fiscal policy variable is also of an exogenous nature.Thereby, the embedded moral and ethical sustainability along the life-fulfillmentregimes of development and wellbeing21 cannot be explained and realized.

The strongly endogenous nature of circular causation relations between the x(θ)-vector (see expression (1.2))22 breaks down. The so-called ‘Islamic’ economics is anexogenously framed ethical study of extraneous moral values in the economic andfinancial system. The consequential effects are felt in the institutions of markets andpolicy-making. Such a nature of the ‘Islamic’ economy cannot formalize a process-oriented theory of micro-money and the real economy.

A category of micro-money are the crypto currencies. Money in existing ‘Islamic’economics is considered as a mainstreammacroeconomic aggregate. Such an exoge-nous variable therefore is incapable of answering the embedded moral-ethical epis-teme of organic unity between the endogenous variables. In the face of all such exoge-nous relations it is impossible to formulate a deconstructed explainable version of themonetarymodel of exchange as amarket-driven and project-specificmeso-economicsystem of inter-causal relations between endogenous variables.

Meso-Economic Formulation of Micro-Money Modelin the EE(�) Version of the Islamic Economy

The following kind of micro-money aggregation by inter-causality is unknown in‘Islamic’ economics andfinance.Yet this is the formulationof themeso-micro-moneyin Islamic meso-economic perspective:

Meso-Aggregation of micro-money valuation

�iMi(θi) · vi(θi) = �i(Tipi

)[θi] �= M.v = I.p, (1.11)

the project-specific version of equation of exchange.vi(θi) denotes {θi}-induced velocity of money circulation across ‘i’-projects. Ti

denotes {θi}-induced transactions in ‘i’-projects. pi(θi) denotes{θi}-induced pricesof ‘i’-projects accounting for transactions, Ti. T denotes macroeconomic aggregatenumber of transactions. Ti(θ) denotes project-specific number of transactions, suchas, a number of bread sold or distributed through Hunger-Alleviating Project, whichis induced by θi-value of social consciousness to yield affordable stable price-valueinduced by θ, namely pi(θ) in the wellbeing function. Ti furthermore contains thevariables, (Fi,Qi)[θi]. {vi(θi)} are the project-specific velocity of money circulation,yet different from the macro-monetary aggregate version of the velocity of moneycirculation denoted by ‘v’. Themeso-economic nature of the entiremodel is conveyedby the effectiveness of θ-induction of the variables with their meanings found in the

21Masud (1995), Rawls (1971), Streeten (1981).22Desai (1989).

Meso-Economic Formulation of Micro-Money Model … 13

wellbeing impact of the methodology of unity of knowledge by circular causationshowing inter-variable endogenous complementarities.

With �i(Tipi)[θi] denoting value added of all meso-project transactions, expres-sion (1.12) can be written as,

[�iMi(θi) · vi(θi)]/�ivi(θi)] · [�ivi(θi)]

=�j(Tipi

)[θi] = (

Mpr · vpr)[

θpr] = (T.p)

[θpr

], (1.12)

This equation applies to all projects in the project-specific groups (‘pr’) of value-added in relation to the quantity ofmoney in circulation. Notwithstanding, the projectgroup-specific micro-money flow with its weighted average, as shown in expression(1.12), is not equal to the macro-money version of the equation of exchange, M.v =T.p

Equation (1.12) can be re-written in the weighted average form,

(Mpr · vpr

)[θpr

] = (T · p)[θpr]. (1.13)

The following inferences can be drawn from this meso-economic version of themicro-money equation of exchange: (1) The quantity of money equals the valueof spending. This equation of valuation becomes exact when vpr(θpr) = 1 (earlierwritten as k − 1), meaning full mobilization of quantities of money in ‘i’-projectstaken individually by proportions of monetary transmission and together in projectgroups denoted by ‘pr’. That is the valuation of money exactly equals the value ofspending measured in terms of the ‘i’-projects group in respect of their value-added(T.p)[θpr].

However, a fractional value of the velocity ofmoney circulation denotedbyvpr(θpr)is acceptable and instructive. It implies the existence of a probability margin towardsattaining exactness. Thereby, in such a situation there remains the continuous scopefor interactive, integrative, and evolutionary learning (IIE-learning process) in andbetween the xi(θ)-vector of variables, as in expression (1.1) in the market economy.The underlying knowledge-induced preferences and menus linked with projectsparticipate in institutional discourse. This activity increases the velocity of moneycirculation by advancing the choices of the life-fulfillment regimes of reconstructionof the moral-material embedded economy, EE(θ).

The Formal Model of Micro-Money by CombiningExpressions

The following steps lead toward the construction of the formalmeso-economicmodelof micro-money interrelating with finance and the real economy (i.e. the MFQ(θ)-formal model) in the framework of Islamic ontological foundation of monotheistic

14 1 Epistemic and Economics

unity of knowledge and its consilience functioning in the world-system; meso-economy being a particular case. The wholeness of the inter-causally unified meso-economy EE(θ) and its components is specified by the system of interaction, inte-gration, and evolutionary learning processes interconnecting money, finance, and thereal economy (MFQ).23 Figure 1.2 outlines this model construction explained by itsattributes.

In the generalizedmeso-economicmodel of EE(θ) particularized tomicro-money,finance, and real economy (MFQ(θ)) taken intertemporally, the following attributesare noted:

1. Primal Ontological Law of unity of knowledge, [�,S] → epistemology, {θ} →yielding functional ontology, {θ,x(θ),t(θ)} → yielding recursively continuousprocesses of the same type at every moment of time as indicated by the specificknowledge-induced event-time point E(θ) on history HH.

2. The Process-Oriented Continuity Implies Interaction in Deriving {�} ∈ [�,S],the Mathematical Open and Unbounded Super-Cardinal Topological Domain(Choudhury, 2017).24

3. The attribute of integration is explainedby simulacra of probability limits denotedby, plim{θ} = θ* ∈ [�, S] with recursive discourse. Hence convergence remainsincomplete in simulacra along HH. Only evolutionary learning abides. Likewise,plim{x(θ)} = x*(θ*) ∈ [�, S] in terms of the defining primal ontological law.25

According to Fig. 1.2 the ontological derivation of unity of knowledge and itsembedding in the details of the generality and particulars of the world-system bya continuity of epistemological derivation and construction of functional ontolo-gies26 goes through evolutionary learning sequences of systemic unification overknowledge, space, time dimensions. The choices of money, finance, real economicactivity, and goods and services with their intertemporal property of continuity overknowledge, space, and time dimensions assume their intrinsic forms within the epis-temological derivation from the primal ontology of monotheistic unity of knowledgein EE(θ). Such primal ontological property of unity of knowledge assumes the exten-sive participatory (complementary) form. Thereby, micro-money becomes targetedspending in projects and their groupings (mutually inclusive projects, sectors, andtheir diversifications of extended life-fulfilling kinds). Micro-money in its spending

23Choudhury (2015).24Choudhury (2017).25Qur’an, (18:19) implies how money is a moral and ethical entity, a manifestation of the sign ofmonotheistic unity, and that meaning of value is induced by the ontological law. The monotheisticlaw of unity of knowledge by complementary pairing inducesthe vector, x() = {M,F,Q}[]in simu-lacra of evolutionary learning processes of ontological derivation, epistemological reconstruction,and continuity of functional ontologies. These properties are recursively sustained in similar waysacross events, {E(,M,F,E,t)[]} in valuation of wellbeing. TheQur’an (18:19) declares in this regard:“…. So send one of you with this silver coin of yours to the city and let him look to which is thebest of food and bring you provision from it and let him be cautious. And let no one be aware ofyou”.26Maxwell (1962), Gruber (1993).

The Formal Model of Micro-Money by Combining Expressions 15

helps in establishing the life-fulfilling regime of development. Such meso-economictransformation premised on ethico-economic unity of organic relations between thechoices conducive of unity of knowledge by extensive participation for generatingwellbeing activates private sector.

Methodological Governance of Islamic Banksin the Meso-Micro-Money and Real Economy Relations

Institutions such as Islamic banks in EE(θ) exercising morally conscious choices andmobilization of micro-money circulation across the span of historiographical conti-nuity as ofHH in Fig. 1.1 ought to understand the dynamics of ontologically premisedparticipatory financing and development instruments to attain ever moving sustain-ablewellbeing as objective criterion. Likewise, Islamic development financial institu-tions ought to know the same so as to replace the existing so-called Islamic financingby debt-ridden instruments. Islamic banks and development financing institutionsbase their legitimacy of financing by a plethora of debt-ridden financing instruments.Islamic economics in its present state of scholarship and practice are therefore unableto disentangle themselves from the resulting impossibility of avoiding interest (riba)and establishing a truly Islamic capital market, real economy, and the transmission ofmicro-money accordingly towards realizing a new Islamic financial architecture.27

The consequential monetary and real economy resource circulation representingthe circular causation as shown in Fig. 1.2 now takes the following form with itscatalytic inner dynamics in resource mobilization: The inter-causal nature of simu-lation of the entire wellbeing function subject to the system of inter-variable circularcausation is carried outfor generating better degrees of inter-variable complemen-tarities in light of the choices of possibilities according to the ontological preceptof unity of knowledge. Such choices are done by improvingthe signs of the statis-tically estimated coefficients of the variables of the circular causation system ofrelations. Figure 1.2 explains this stage of the abstracto-empirical phenomenologyof simulating the wellbeing objective function in respect of its methodologicalbackground.

We now note that in the project-specific case the following interrelations wouldabide:

[M ↑⇒ f ↑⇒ r ↓⇒ c ↓⇒ (

P∧ → 0) ⇒ y ↑⇒ R ↑⇒ Q ↑⇒ ρ ↑]

(θ), (1.14)

Pˆ denotes rate of change in price level; (Pˆ → 0) denotes attainment of pricestability.This feature of MFQ(θ) avoids the problem of monetary plague in the midstof asset-price inflation.28 The chain (1.6) of interrelations is influenced by the impactof evolutionary learning. ‘θ’ is embedded in the circular causation variables.In the

27Choudhury (2010).28Brown (2015).

16 1 Epistemic and Economics

MFQ circular causation model of the wellbeing criterion in EE(θ), which we maynow refer to as MFQ(θ) circulatory model,the critical levels of complementaritiesto study are those between the monetary regime characterized by {M,R}[θ]; thespending regime f(r,R)[θ]; and the real economy {y, Q, Pˆ, R, }[θ]. ‘R’ denotes therate of returnon real assets. denotes technological change and inherent aggregationof preferences and menus along the IIE-learning processes. This functionality ofdynamic knowledge-induced aggregation of preferences was explained earlier. ydenotes real income. Rest of the variables were defined earlier.

These MFQ[θ]-relations explain that,increasing ‘R’ and stable ‘P’ levels replaceinterest rates(r) and cost of capital (c) withthe relationship between inflation (Pˆ →0), money, spending, and real economy circular effects.29 That is, a certain pricetarget is set. Inflation gravitates towards a zero rate; and spells out the endogenousmonetary policies needed to maintain the zero-inflation target. Now the CentralBank (CB) becomes a joint venturist with the private sector (commercial banks) inorder to promote market deepening and widening. Prices are stabilized under theimpact of the target of zero inflation rate. The generalized interactive, integrative,and evolutionary learning system (IIE) yields endogenous change with technology ()and the continuous evolutionary learning behaviour of the inner variables, as shownin expression (1.6). Expression (1.6) can thus be cogently applied to the case ofsimulating the wellbeing objective, subject to circular causation relations betweenthe endogenous variables. The underlying meso-economic properties and modelingare thus discovered for micro-money and real economy interrelationship.

Conclusion

This chapter introduces the salient explanation of a new epistemic way of recon-structing economic theory with ethical and social embedding in terms of pervasivecomplementarities between the selected variables. The epistemological premise ofthe complementary way of understanding inter-causal relations between the vari-ables induced by knowledge-flows is the perspective of a methodological worldviewof unity of knowledge. The methodological foundation of such an ethico-economicway of inter-relating the endogenously embedded variables gives rise to the modelof circular causation. It forms a unique and universal model arising from the episte-mological roots of unity of knowledge and the properties of interaction, integration,and evolutionary learning in unity of knowledge across learning processes. Such amodel forms the generalized computational evolutionary equilibrium model in thequest for mesoscience of Islamic economics. From it particular problem-solvingcases are derived. Thus a robust heterodox direction of ethico-economic formalismis established in the epistemic and economic context of unity of knowledge.

In EE(θ) as a whole in the architecture of Islamic economy as meso-economy,the embedding of every variable in its pervasively endogenous state by the episteme

29Benanke and Mishkin (2007).

Conclusion 17

of unity of knowledge, {θ}, derived ontologically from (�, S), conveys the endoge-nous nature of interaction, integration, and evolutionary learning everywhere and ineverything. {θ} in this organically relational form invokes the essential centricity ofmoral consciousness. It thereby affirms the epistemic effect of unity of knowledgein both the organic causality of relations between the good things of life and thedifferentiating effects of ethics-benign regime of economic reasoning.

The greatly extended explanatory effects of θ-induction of trade financing instru-ments contrary to the existing ‘Islamic’ economics of debt-financing instruments areunknown in ‘Islamic’ economics of the present genre. The resulting intellectuallybenign outcome of the so-called ‘Islamic’ economics is steeped in the microeco-nomic and macroeconomic mainstream dichotomy and their theories. Consequently,the resulting debt-ridden Islamic economics and financing remain gripped in atem-poral and intertemporal meanings of asset valuation by interest (riba) as cost andefficiency of capital. The positive effects of trade-related participatory financinginstruments are unexplained intellectually and unrealized institutionally.

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Benanke, B., &Mishkin, F. S. (2007). Inflation targeting: A new framework for monetary policy. InF. S. Mishkin (Ed.), Monetary policy strategy (pp. 207–226). Cambridge, MA.: The MIT Press

Bhaskar, R. (1994). Plato etc. London, England: Verson.Brown, B. (2015). A Global Monetary Plague. London, Eng: New Palgrave.Choudhury, M. A. (2010). Unity of knowledge versus Kant’s heteronomy with a reference to theproblem of money, finance and real economy relations in a new global financial architecture.International Journal of Social Economics, 37(10), 764–778.

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Choudhury, M. A. (2017). A Phenomenological Theory of Islamic Economics. Kuala Lumpur,Malaysia: University of Malaya Press.

Choudhury, M. A., & Rahim, H. A. (2016). an epistemic definition of Islamic economics. ACRNOxford Journal of Finance and Risk Perspectives, 5(2), 106–120.

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Kamali, M. H. (1991). Principles of Islamic jurisprudence. Cambridge, Eng: Islamic Text Society.Lawson, T. (1997). Economics and reality. London, England: Routledge.Lawson, T., & Pesaran, H. (2009). Keynes’ economics methodological issues. London, England:Routledge.

Mahomedy, A. C. (2013). Islamic economics: Still in search of an identity. International Journalof Social Economics, 40(6), 556–578.

Masud, M. K. (1995). Shatibi’s theory of meaning. Islamic Research Institute: International IslamicUniversity, Islamabad, Pakistan.

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Maxwell, G. (1962). The ontological status of theoretical entities. In H. Feigl & G. Maxwell (Eds.),Minnesota studies in the philosophy of science, Vol. II: Scientific explanation, space and time(pp. 3–27). Minneapolis, Minnesota: University of Minnesota Press.

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O’Donnell, R.M. (1989).Keynes:Philosophy, economics andpolitics. London,England:MacmillanPress Ltd.

Rawls, J. (1971). A theory of justice. Cambridge, Massachusetts: Harvard University Press.Sen, A. (1992). Conduct, ethics and economics. In On ethics & economics (pp. 88–89). Oxford,UK: Basil Blackwell.

Shackle, G. L. S. (1972). Epistemics and economics. Cambridge, England: Cambridge UniversityPress.

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Chapter 2Ontoloical Foundation of the Theoryof Economtrics in Unity of Knowledgeby Inter-Causality

Abstract As claimed often, religion and science, be this in meso-economics andmesoscience, are not in conflict. That is true only if the explanation is based onreasoned analyticity. Indeed, the universal law of monotheistic oneness is unravelledby the signs of God as the ones that are explained in the order and scheme of allthings. Such a reasoned unravelling of reality is both by way of abstraction that leadsinto analytical logical formalism, as it is also phenomenological in explanation,application, empiricism, and sustained continuity across knowledge, space, and timedimensions. The construction of the underlying ontological, epistemological, andphenomenological worldview arises from Tawhid (monotheism) as the universaland unique law. This chapter explains these details.

Inter-Causality (Circular Causation) in the WellbeingFunction

The econometric theory of inter-causality between the entire set of variables and theirspecific parametric representations is premised on the primal ontology of the systemof relations pertaining to the problem under theoretical and empirical investigation.The resulting organic (symbiotic) interrelationships that are explained between thevariables and parameters bring out their relations specific to the epistemologicalmeaning of the ontologically based theory of inter-variable endogeneity. The primalontological basis of the emergent new econometric theory of full inter-variable endo-geneity is derived from the principle of extensive complementarities between them.The inter-variable complementary relations including the parametric ones can be amix of positive or negative signs with the respective explanation for such signs in thepertinent model of wellbeing. The same phenomenon is ontologically explained bymeans of the correlation coefficient, positive or negative, respectively, between thevariables and parameters.

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_2

19

20 2 Ontoloical Foundation of the Theory of Economtrics …

Primal ontology1 firstly establishes the foundation of the nature of the world-system under study in the problem-domain. The primal ontology delineates theTRUTH nature of the world-system in generality and details in terms of the universaland unique principle of unity of knowledge. Knowledge thereby is epistemologicallyderived from the concept of organic (symbiotic, neurocybernetic)2 inter-causalitybetween the representative variables of the problem and issue under study. On theother hand, the FALSE nature of the world-system is delineated by oppositeness ofconflict and competition between the entities represented in the study. Such latterproperties are exhibited by the neoclassical economic marginal rate of substitution.Consequently, the axioms of economic rationality, scarcity of resources, competition,optimization, and steady-state equilibriums are thoroughly contested and reduced toillogical characterization of the ontological-cum-epistemological learning entities ofthe world-system and the problem under study.

TRUTH and FALSE

The meaning of TRUTH (hence goodness) as organic meaning of unity of knowl-edge qua pervasive complementarities and thus by inter-variable causality is in termsof the effect of such systemic relations on the particularities and total measure ofthe wellbeing consequence. The meaning of FALSE (hence falsehood) refers to thenegative consequences, such as of conflict, competition, deprivation and scarcity,methodological independence and individualism between the particular represen-tations and on the total measure of wellbeing. Such negative effects are causedby specific choices of the entities represented by their variables on the particularsand total measure of wellbeing. Choices and decisions are finally caused by humanconsciousness and moral/ethical actions in self and society, the global neighbour-hood at large. Consciousness is endogenous ethical actualization in self and other. Itis explained by the combination of coexistence signified by pervasive complemen-tarities between the good things of life while avoiding the false things of life andtheir quantitative evaluation for moral-material coterminous sustainability.

1Ontology means the theory of existence of being. Primal ontology is the originary principle of theexistence of being, as in the case of existence of God as the first principle of creation. Functionalor portable ontology means the functional becoming of being as in the Dasein concept of spiritualuplife into higher stages of knowledge given by Heidegger (.) and in the sixty veils of light toknow Allah as in Ghazali’sNich of Lights (Buchman,). Buchman, D. trans. (1998). Al-GhazzaliNiche of Lights, Brigham University Press, Provo, Utah.Karim (n.d.Karim, F. (undated) ImamGhazali’sIhyaUlum-Id-Din, Shah Muhammad Ashraf, Lahore, Pakistan.2Cantner, Gaffard, and Nesta (2009) and Choudhury (2010).

Consciousness and Ethical Endogeneity 21

Consciousness and Ethical Endogeneity

Contrary to the evaluation of the positive effects of conscious choices of the goodthings of life on the wellbeing criterion measure; the false things contribute to thenegative effects on the wellbeing criterion, whereas it contributes positively to thefunction of negative wellbeing.3 The conscious invoking of the good and bad thingsof life involves guidance by the text of the primal ontological law, self-inducedrealization, and a degree of enforcement by institutional power if not in the individualthen in social context. Examples of enforced social contracts are policing the marketprocess by controls and guidelines; policed rules of corporate social responsibility;policed institutional governance by rules of good corporate governance.An ideal stateof endogenous socio-economic transformation shows a deepest self-actualization ofself-motivation and a minimal need for policing exogenously—that is externally.Thus, knowledge of coexistence as the highest sign of unity of knowledge betweenself and the other conveys the highest level of consciousness. This also marks thebest approach to sustainability of the conscious acceptance and practice of the goodthings; and the inversely minimal level of falsehood.

The following are some examples of endogenous nature of ethics and its inducedvariables: Conscious duty abounds propensity in human belief and consciousness toact in the right and just way to self and other. In this way, policing of justice by thecourts of law is superseded firstly, by the approach to natural commitment to justiceby settling contested matters outside the court by friendly will. Political contentioncan be resolved by inter-country and inter-regional agreements and non-partisanship.An example of such a case is of the Scandinavian countries and Switzerland. Thesecountries give preference to mutuality of agreements over taking sides. In the marketcase of endogenous choices, preferences are driven by knowledge impact regardingthe good things of life in the choices. Examples in this area are choices of healthprotection goods and rejection of contrary goods; choices of socially beneficial goodsand rejecting conspicuous consumption. It is likewise the case with socially wastefulproduction to reject and life-fulfillment needs to accept. Environment protectiongainsself-conscious knowledge of protecting the future generation of all forms of resourcesfor the common good. In development studies wellbeing receives predominanceover growth and development with the desire to choose life-sustaining regimes ofdevelopment by the wellbeing criterion. Thus endogenous growth and developmentreceives preference over the notion of scarcity of resources to compete and optimizegrowth as in conventional macroeconomic theory.

Contrary to the deontological meaning of ethical endogeneity,4 ethical conductof exogenous nature require costly policing by regrettable, such social enforcementby policing of courts of law, penalties, and chiselling behaviour of institutions andproducers. Examples of such cases are costly imposition of Corporate Social Respon-sibility and Corporate Governance that require contentious enforcement designs.

3In the Islamic nomenclature, the wellbeing criterion is referred to as maslaha; negative wellbeingfunction is referred to as mafasid.4Sen (1988).

22 2 Ontoloical Foundation of the Theory of Economtrics …

Table 2.1 Outline of the ontologically induced econometric model in circulation causation andpermanent endogeneity of knowledge-induced variables of Truth and False in their respectiveevaluation criteria

Contrary to endogenous realization of life-sustaining patterns of growth and devel-opment, developing countries have been led to commit ghastly problems of socialwellbeing.5 Such macroeconomic policy-theoretic approaches are opposed by thetheory and applicationof econometrics of circular causation concerning thewellbeingcriterion.

Initiating Some Critical Concepts in the Buildingof the Econometrics of Circular Causation

The critical early concepts in the building blocks of the econometric theory ofcircular causation (inter-causality) are described by the following abiding relation-ship on stages of formulation of epistemologically derived ideas and their passageinto empirical evaluation.6

Table 2.1 further translates Table 2.1 into the symbolic form. This presents themodel that is permanently derived from the primal ontology of unity of knowledgeand is applied to the qualitative and quantitative analytical study of ‘everything’.7 Aparticular case of this holistic system is the formulation of the econometric model.

5Streeten (1981).6Gruber (1993).7Choudhury (2019).

Initiating Some Critical Concepts in the Building … 23

The ontologically derived knowledge parameter and its pervasive induction of allvariables in the wellbeing function is shown in Table 2.2. The resulting abstracto-empirical way as the integrated way of explaining the embedding of moral andmaterial values is measured by the wellbeing function subject to the system of non-linear forms of circular causation relations in respect of unity of knowledge. Thiscase is brought out by the formulations shown in Table 2.2.

Table 2.2 Formalizing the underlying model of Table 2.1

24 2 Ontoloical Foundation of the Theory of Economtrics …

The same structure of the wellbeing model and its inter-causal relations apply tothe problem domain of the False. Yet the specifications remain different from thewellbeing model entirely.

The symbolic representation of the model shown in Table 2.2 brings out a numberof critical concepts that will be used throughout this work in formalizing the theoryof circular causation with the ontology of organic unity of knowledge. Indeed, onenotes the central role that the theory of circular causation as social causation and thenatural understanding of scientific phenomena held up among some great thinkerson the ontology of social and physical reality.

On the issue of the open-ended cybernetic nature of the universe in symbiotic unitybetween ‘everything’ Kant (trans. Friedrich, 1940, p. 261) expressed his distinctiveontological thought in the following words: “Two things fill the mind with ever newand increasing awe and admiration the more frequently and continuously reflectionis occupied with them; the starred heaven above me and the moral law within me.I ought not to seek either outside my field of vision, as though they were eithershrouded in obscurity or were visionary. I see them confronting me and link themimmediately with the consciousness of my existence.”

The Principle of Circular Causation in High Thinking

The circular causation model is well-known in mainstream economics, althoughit was discussed though not formulated by Myrdal.8 The failure of mainstreameconomics is its inability to incorporate the circular causation model as an eval-uative technique. Mainstream economics merely points out the importance to note,yet just the exogenous nature of the ethical element in socioeconomic field. Thusthis failure of mainstream economics can be encapsulated in the central cause of theabsence of evolutionary learning, and thereby, of the wellbeing objective criterionwith complementarities in the socioeconomic and ethical sense of the variables.

Ghazali9 wrote on the principle of causality and its imminent events: In brief,every event has a temporal cause, until the chain of causes terminates with the eternalcelestialmotion,where each part is the cause of another. Hence, the causes and effectsin their chain terminate with the particular celestial motions. Thus, that which is arepresentation of the movements is a representation of their consequences and theconsequences of their consequences to the end of the chain. In this way, what willhappen is known. For [in the case of] everything that will happen, its occurrence is anecessary consequence of its cause, once the cause is realized. We do not know whatwill happen in the future only because we do not know all the causes [of the futureeffects]. If we were to know all the causes, we would know all the effects.

8Toner (1999).9Ghazzali (1997).

The Principle of Circular Causation in High Thinking 25

On the phenomenon of continuity over time by repeated simulation Fitzpatrick10

writes: “everything is a reproduction of other reproductions. Society explodes in onitself and we cannot liberate ourselves from the simulacra…”

In the physical sciences too, a similar experience of simulacra abides. Hawkingand Mlodinow11 write: “Feynman showed that, for a general system, the probabilityof any observation is constructed from all the possible histories that could have ledto that observation. Because of that his method is called the ‘sum over histories’ or‘alternative histories’ formulation of quantum physics.”

The Positive Wellbeing Criterion and Negative WellbeingFunction

The definitions of the positive wellbeing criterion and negative wellbeing criterioncan be noted. Because of the nature of the TRUTH domain of problem-solving thewellbeing function conveys the measure of the degree of unity of knowledge attainedby complementarities between the good things of life as these are consciously deter-mined by the ontological law. The wellbeing function by its selected variables repre-senting TRUTH also establishes the FALSE domain by avoidance of the mathemat-ical complementation of nullity between TRUTH and FALSE domains of unity ofknowledge.

The negative wellbeing function conveys the dissociative nature of its entitiesrepresented by their characterizing variables. This yields property that signifiesmethodological independence and individualism. They arise from and further reaf-firm the axioms of rationalism and rationality, resource scarcity, competition andconflict. Negative wellbeing can also arise from and reaffirm the properties of thedialectical problem-domain based on the axioms of conflict, competition, resourcescarcity, and rationalism. The primal ontological premises of the above two provincesof negative wellbeing and its multivariate spaces, namely methodological indepen-dence with individualism, and dialectical conflict with competition are found inrationalism and rationality for every socio-scientific discipline.

It is repeatedly necessary to note how the primal ontological origin of the newabstracto-empirical worldview of organic unity of knowledge presents itself. Wethereby understand how this foundational ontology is explained by the theory ofpervasive complementarities between endogenously existing entitles and their vari-ables. These arise from the foundational text of the ontological law of unity ofknowledge.

10Fitzpatrick (2003).11Hawking and Mlodinow (2010).

26 2 Ontoloical Foundation of the Theory of Economtrics …

Circular Causation or Inter-Causality from the OntologicalCore of (�, S)

To articulate our above fundamental explanation of the primal determining ontologyof unity of knowledge as explained in the formal nature of the abstracto-empiricaltotality of ‘everything’ we proceed by the showing inter-causal implications inFig. 2.1. It is shown that, the ontological precept of unity of knowledge prevailsand washes every part of Fig. 2.1. Deriving knowledge by reference to such lawsthat enable derivation of unity of knowledge and otherwise, the ontological originremains permanently as the seat of this precept. The same premise also elaborateson the organic nature of unity by causality and its comprehension, observation and

Evolu�onary learning process

primal ontology problem-domain Modeling Con�nuity

} over knowledge, space, �me: repeated simula�ons of en��es and variables in

( ,S) { ,x( )} Evaluate W(x( )) knowledge-induced of model & recursive subject to problems and issues:

1( ) Circular causa�on (C.C.) sustainability. i( ) = fi(xj( ), ),

j. 2( ) ‘ ’ xn( ) =W(x( )).

3( ) of circular causa�on

} ( ,S) ’

coefficients and the

by evolu on of Recalling primal ontology by simulacra {

Ontological indu onx

xi,j=1,2,…,n; i

xAll func onalrela ons appear in non-linear form

xBetween EndogenousMul variates in Unity ofKnowledge {because of the ‘indu of the

stoch c variablesof the evaluated (i.e. es�mated and simulated) C.C. equa�ons. Sta�s�cal analysis and policy direc�ves follow.

Fig. 2.1 Ontological sensitivity of (�, S) via {θ} in abstracto-empirical model construction

Circular Causation or Inter-Causality from the Ontological Core of (�, S) 27

application in generality and specific problem-domains. The same primal ontolog-ical precept leads into the construction of the positive wellbeing (negative well-being). This is done by following the same method of translating mutually distinctmethodologies that absorb the qualitative and quantitative implications of the onto-logical law. For positive wellbeing this methodology is organic precept of unity ofknowledge. For negative wellbeing the ontology is methodological individualismand independence of organic relations caused by inter-variable exogeneity. Yet thesame methodological and methodical approach of unity of knowledge yields boththe TRUTH and FALSE nature of the world-system in which a specific problemis studied. In either of these methodological approaches emanating from TRUTHdomain by its opposite complementation with the FALSE domain, the ontologicalpremise of (�, S), � as primal ontology and ‘S’ as its explicatory mapping to delin-eate the law of unity of knowledge (TRUTH) oppositely to the laws of FALSEdomain remains exogenously permanent. ‘S’ derives specific knowledge flows as‘θ’-parameter from the �-ontological premise unity of knowledge. ‘θ’ is evolved bycontinuous learning. Thus the entire socio-scientific system is fully washed by ‘θ’epistemologically derived from� by ‘S’. These together form the primal ontologicalpremise, and is written as the inseparable tuple, (�, S).

The Universality of (�, S) in Pervasive Consciousnessof Unity of Knowledge

The continuous and pervasive reference to the primal ontological origin everywhereaccording to the Tables 2.1, 2.2 and Fig. 2.1 means the instilling of consciousness byevolutionary levels of learning and application in embedding betweenmorality/ethicsand materiality. The meaning of consciousness in this phenomenological context ofuniversality of its endogenous nature bestows a subtle meaning to it in terms of moraland material values.

In this regard, Kaku12 defines consciousness as follows: “Consciousness is theprocess of creating a model of the world using multiple feedback loops in variousparameters (e.g. in temperatures, space, time, and in relation to others), in order toaccomplish a goal (e.g. find mates, food, shelter).” The parameter for describingthe significance of the world-system and its sustainability in knowledge, space, andtime dimensions that we have shown in terms of the primal ontological awarenessmost centrally is unity of knowledge and its abstracto-empirical consequences in thenature of ‘everything’.

12Kaku (2015).

28 2 Ontoloical Foundation of the Theory of Economtrics …

Consciousness Modeled in Econometrics of Inter-Causality

Such a phenomenological description of the world-system is summarized by inter-loping the various parts of the universal system of ‘everything’ in the followingeconometric modeling:

{F(θ, x(θ))} = F[(�,S) ∩ {(θ, x(θ))} ∩ {W(θ), x(θ))}] (2.1)

This generalized functional holds across the entirety of knowledge, space, andtime dimensions. Therefore, sustainability of consciousness in all ontic experience.13

Equation 2.1 is explained by,

(d/dt)(d/dθ)(F(θ, x(θ)) > 0, for ∀[{θ ∈ (�,S)} →f f(x(θ))] (2.2)

Here the entire functional F(.) comprises higher mathematical transformationsdefined over {(θ, x(θ)} in time ‘t’.14 The primal ontology of (�, S) remains exogenousand induces everyother endogenous category. f(.) denotes all possible transformationsof {x(θ)} in the evolutionary classes of {(θ, x(θ))} including their complex ordercompounding in the sustainable learning processes of unity of knowledge. The restof the properties of inter-variable circular causation and complete endogeneity ofinter-variable organic relations is implied.

Similar formalismof the entire problem-domain of FALSEarises from rationalismin mathematical complementation to TRUTH. The FALSE domain is marked by itsvicissitude of thought describing the diversity of conflictingworld-systems in respectof methodological independence and individualism. The result then is absence ofendogenous embedding of consciousness of moral values in all the categories. Suchcontrariety prevails everywhere in generality and particulars of issues and problemsunder study.

The Nature of Morality/ethics in Econometricsof Mainstream and Circular Causation Fields

The nature of morality and ethics exist in the negative wellbeing case as exogenousparameters. This is the case found in all of mainstream socio-scientific inquiry.15

13Sherover (1972).14Choudhury (2019).15Dampier (1961).

The Nature of Morality/ethics … 29

Exogeneity of moral and ethical emotions is not conscious sign of endogenousvalues that regulate our thought, lives, actions, and shape the generality and partic-ulars of the world-system automatically. Thus for example, if we treat social expen-diture for welfare in the usual form of the econometric model it enters as a sepa-rate exogenous variable. This causes independence of the ethical variable from theother economic variables. Thereby, in fiscal expenditure only taxation can causean expansion of social expenditure. But this reduces other expenditure, therebyresulting in marginal rate of substitution between the social and other expendi-ture. The effect is thereby conveyed into moral values and material values. Onlyknowledge-induced consciousness can overcome such marginal rate of substitutionbetweenmoral andmaterial values of social consciousness. Suchmotivations requireexpansion of resources that come about by participatory complementarities) betweenmoral andmaterial values. This result of continuous reproduction of resources is real-ized by inter-causality between moral and material outcomes in conscious thoughtand action.

This type of resource augmentation for complementary common good can be real-ized as an example, by realizing dynamic basic needs regimes of development andsustainability.16 Impossibility of treating moral/ethical values as part of complemen-tary inter-variable knowledge-induction, when it remains independent of comple-mentary knowledge-induction with economic variables, is part of the rationalityaxiomof social choice and rational choice. Such axioms cannot be overcome logicallyin the pursuit of optimization and steady-state equilibrium objectives.

These failures between moral/ethical reality and rationality maximization goalsof social and economic science caused impossibility in the ethicist Keynes to solvethe moral question in macroeconomic econometric framework.17 It also played itsimpossibility in overcoming the irrelevant preference concept, whereby minority orweak preferences in voting behaviour are ignored as a neoclassical property of socialwelfare and social choice18 of majority rule. According to the postulate of irrelevantpreferences19 a losing voting for minority population can be rejected by winningby the stronger side despite any moral connotation irrelevant preferences may holdexogenously.

Contrarily, to introduce moral/ethical values a coalition between all categories ofvoters with diverse preferences and goals must be allowed in a participatory demo-cratic framework of voting. This allows for knowledge-induced positive complemen-taritieswhile avoiding conflicting and opposing preferences. In treatingmoral/ethicalvalues exogenously in the econometric model, it is illogical to have such valuesdepend on knowledge as of the ontological premise of unity of knowledge. The

16Streeten (1958) and Todaro (1977).17O’Donnell (1989).18Arrow (1951).19Stanford Encyclopedia of Philosophy (Oct 14, 2014). “Arrow’s Theorem”.

30 2 Ontoloical Foundation of the Theory of Economtrics …

results of such ethical constrictions in mainstream economic theory are the postu-lates of optimization and technically attaining of steady-state equilibrium. Such tech-nical properties are upheld even though they do not represent social, economic, andscientific reality.20

Econometric Concerns Underlying Circular CausationTheory Versus Mainstream Economic Theory

With increasing reduction of fiscal policy effects on market transformation,government policy intervention reduces; market activities increase. Consequently,autonomous government expenditure, GA, is replaced by conscious householdincreasing spending, say (S(Y)), as an ethical duty. Taxation (T(Y)) is reduced inthe face privatization by market forces. These transformations into market processwith moral/ethical consciousness further enhanced by the force of learning by {θ}-effect, generates complementary relations between moral/ethical consciousness andmarket activity variables existing in inter-causality of unity of knowledge. That is,moral/ethical and market activity embedding increases with the increase in evolu-tionary knowledge regarding complementarities according to the intrinsic law ofunity of knowledge. Thereby, S(Y)↑ with T(Y)↓and vice-a-versa, as the exoge-nous ethicality of government policy intervention reduces in the face of increasingendogenous consciousness by the moral/ethical embedding with market activity as{θ}↑.

Now themarket transformation is heightenedwith the evolutionary learning effectof {θ} on the circular causation relations marked by,

Y(θ) = f1(S(Y(θ)/T(Y(θ)), θ) (2.3)

implying,

(Y(θ))/T(Y(θ)) = f2(Y(θ), θ) (2.4)

S(Y(θ))/T(Y(θ)) = f2(Y(θ), θ (2.5)

θ = f(Y(θ),S(Y(θ)/T(Y(θ))) (2.6)

The expected signs of the knowledge-induced coefficients and thereby the inter-correlations are shown to be positive. ‘θ’-parameter appears in every equation tomeanprogressive learning by complementarities between the variables as the ontologicalinduction of unity of knowledge.

20Shackle (1972) and Hull (1988).

Econometric Concerns Underlying Circular Causation Theory … 31

The above circular causation relations arise by virtue of the complete endo-geneity between the variables, as represented by expression (2.6).The wellbeingfunction in the variables in positive complementarities represented by their positiveinter-correlation coefficients is signified by Eq. (2.6). The underlying implicationof the above econometric formulation is that, it is not the government and inten-sive institutional imposition that attain moral/ethical consciousness. Rather, it isthe self-actualization of embedded moral values in materiality that effectively real-izes consciousness as an evolutionary learning process. Such evolutionary learningprocesses maintain sustainability in knowledge, space, and time dimensions. Thecontinuity over time is implicit.

The conventional form of the econometricmodel corresponding to the above spec-ification is differently conceptualized and applied. Government expenditure variable,GA, autonomously determined, is a critical variable that drives the incomemultiplier.Fiscal policy is determined by, (T(Y)-G), which can be positive when net surplusgeneral revenue occurs to the benefit of government in financing GA. When thefiscal balance is negative, government expenditure exceeds tax revenue, thus causingdeficit. Government fiscal policy fluctuates between these two ends causingmarginalrate of substitution between fiscal austerity and fiscal expansion. The resulting exoge-nous ethics by government and institutional fiscal decision is unlike the endogenouscase of market absorption of conscious household spending attitude. In that case(T(Y)-G)↓ identically.

Furthermore,

Y = C(Y) + I(Y) + GA (2.7)

C(Y,W) = a + b.Yd + c.W(Yd), (2.8)

with Yd denoting disposable income; W(.) denoting wealth.21

I(Y,W, r, i) = g0 + g1.Yd + g2.W(Yd) + g3.(r/i) (2.9)

G = GA, autonomous government expenditure

(T(Y,W) − GA

)(2.10)

21Wealth variable in the intertemporal consumption function arises from the life-cycle hypothesisof consumption and savings. It is also found in the permanent income hypothesis divided betweenpermanent income (Yd) and transitory income (wealth as determined by returns in stocks, shares,and bonds). In the formalism of present valuation of future streams of various cash-flows we have,C(Y) = (CP(YP) + CT(YT)) = t

N [C(Y)/(1 + r)t]. CP(YP) denotes permanent consumption basedon permanent income YP. CT(YT) denotes transitory consumption based on transitory income, YT.Y = TP + YT. ‘r’ denotes time-preference rate. ‘i’ denotes interest rate. Investment expenditure,I(Y, W, r/i) can be expressed similarly in terms of Y. Furthermore, ‘r’ and ‘i’ can be specified interms of ‘P and ‘T’. This is not shown here. An example is to invest in risk-free assets (IT(YT, W,r/i), and market-risky assets (IP(YP, W, r/i)). I(Y,W,r/i) = (IP(YP, W, r/i)) + (IT(YT, W, r/i).

32 2 Ontoloical Foundation of the Theory of Economtrics …

is positive or negative for surplus or deficit in general revenue, respectively.When Eqs. (2.8)–(2.10) are inserted in Eq. (2.7) we obtain the resulting

expenditure sector equation in the form,

Yd = A + B.W + C.(r/i) + D.GA

Here,A = (a + g0

)/(1 − b − g1

)

B = (c + g2

)/(1 − b − g1

)

C = g3/(1 − b − g1

)

D = 1/(1 − b − g1

)

(2.11)

Now unless (r/i) and GA are taken as exogenous variables or parametric in natureand r < i, so that the coefficients C < 0, with marginal propensity to consume andmarginal propensity to invest adding up to less than or equal to 1, there cannot be anegative sloped expenditure sector curve. A positively sloped expenditure curve willimply that a general macroeconomic equilibrium does not exist.

We can prove this case furthermore by considering the liquidity-money (LM)curve of the monetary sector:

Quantity of money, M = l0 + l1.Y + l2.W + l3.(r/i) (2.12)

l3 > 0, because of the positive effect of (r/i) caused by r < i. That is increasing ‘i’causes higher supply of money. l0, l1, l2 are each positive coefficient. The net resultis a positively sloped monetary sector curve, the LM-curve.

We then have both a positively sloped expenditure sector curve and a positivelysloped monetary sector curve. With the exogenous effects of (r/i) and W(.) on theexpenditure sector curve and the monetary sector curve the effects on the generalmacroeconomic equilibrium cannot be determined precisely. This indeterminacy ofequilibrium in Keynesian general macroeconomic equilibrium model is caused byunpredictable relations between (r/i) and real output. This consequence points to theimpossibility of monetary and fiscal, private and public sector policies to be welldetermined.

The expressions (2.7)–(2.11) are linearly independent between the variables asshown. Thereby, relational functions between the variables cannot be shown as incircular causation between them. There is no effect of the critical learning parameterinducing all the variables, thus explaining the details of the policy-theoretic conse-quences. The accounting nature of the general macroeconomic equilibrium cannotexplain the relational aspect of the wellbeing objective criterion.

This is not to say that Keynes did not think of evolutionary equilibrium under theimpact of policy andmarket forceswhilemoving under-employment equilibrium realincome towards full-employment level of real income at stable price-level.22 Rather,the underlying problem in Keynesian idea of general equilibrium is caused by theproblem of how the economic universe is determined in the face of its probabilistic

22Dimand (2017) and Clark (1915).

Econometric Concerns Underlying Circular Causation Theory … 33

randomness.23 Keynes finally had to render this problem by assuming the postulatesof economic rationality of human behaviour. Thus, the ontological roots of Keynes’thought rests on randomness of knowledge causing uncertainty. Keynes resolves thisakin to the neoclassical form of axioms of economic rationality. This approach iscontrary to the a priori ontological premise of unity of knowledge and its relationswith the generality and particularities of the world-system in the problem-domain.Similar ideas on evolutionary equilibrium were offered by the Austrian School ofEconomics.24 Like circular causation, the theory of cumulative social causation wasadvanced by Myrdal.25

The limitations of these formulations on evolutionary economic thought are thelack of analytical explanatory model, the explicit use of knowledge-induction, andthe prevalence of exogenous variables that reflect suppressed transformation intothe much desired ethically induced market process. The works by Robinson26 andNelson and Winter27 are of the neoclassical genre. They therefore cannot explaininter-variable causation, and circular causation away from dialectical process theoryor in explicit analytics of evolutionary learning, respectively.28

Generalized Economic Evolutionary Equilibrium Causedby Circular Causation

The general equilibrium formulation in terms of circular causation between the ‘θ’-induced variables of wellbeing function is the evaluation system shown in Fig. 2.1.It takes the following form between the list of endogenous variables, x(θ) = {Y, W,r/I, C, I, T, S, M, θ}[θ]:

Evaluate the moral-material complementarity in the wellbeing function,

Evaluate{θ,x(θ)}W (x(θ)) (2.13)

Subject to the inter-variable circular causation (C.C) non-linear logarithmic rela-tions (f’s). Non-linearity is due to the induction of both variables and coefficientsand their complexly compounded transformations by θ-parameter in continuoussimulations:

Y(θ) = f1(W, r/I,C, I,T,S,M, θ)[θ] (2.14)

23Lawson and Pesaran (2009).24Hayek (1990) and Cantner et al. (2009).25Toner (1999).26Burstein (1991).27Nelson and Winter (1985).28Sztompka (1991).

34 2 Ontoloical Foundation of the Theory of Economtrics …

W(θ) = f2(Y, r/I,C, I,T,S,M, θ)[θ] (2.15)

(r/i)(θ) = f3(Y,W,C, I,T,S,M, θ)[θ] (2.16)

C(θ) = f4(Y,W, r/I, I,T,S,M, θ)[θ] (2.17)

I(θ) = f5(Y,W, r/I,C,T,S,M, θ)[θ] (2.18)

T(θ = f6(Y,W, r/I,C, I,S,M, θ)[θ] (2.19)

S(θ) = f7(Y,W, r/I,C, I,T,M, θ)[θ] (2.20)

S as spending variable is replacement for the exogenous GA-variable.

M(θ) = f7(Y,W, r/I,C, I,T,S, θ)[θ]θ = f8(Y,W, r/I,C, I,T,S,M)[θ] (2.21)

The recurrent appearance of ‘θ’-parameter in the induced variables and func-tions imply continuous evolutionary learning process over knowledge, space, time(implicit) dimensions. The system of CC relations applies to time series data, surveydata, and meso-data as a combination of time-series and survey data, microeconomicand macroeconomic aggregate data formed by microeconomic data via preferenceaggregation. The generalized evolutionary equilibrium values of the evaluated (esti-mated and simulated) variables comprise a specific state of the evolutionary equi-librium solution that is subject to further simulated values with new sets of data andpolicy-driven alternatives, and so on.

A specific policy-driven case is inferable from the relationship between S↑ andT↓ and the resulting effect on the quantity of money, M↑, and monetary policy,(dM/dθ) > 0. This result agrees with Friedman’s29 analysis that, with deepeningmarket transformation and thereby decreasing government policing of the economy,monetary policy gains impact at the replacement of fiscal policy. Thereby, with thefull impact of spending ‘S’↑, complementary expansionarymonetary policy becomesfully effective in market transformation. Furthermore, with monetary policy beingdefined under θ-impact, the positive complementary relationship between markettransformation and expansionary monetary policy is inter-causally reinforced by thedeepening ethical household and institutional preferences. In all such consciouslysustained economic transformations governments become discursive participantswith the microeconomic socioeconomic agents.

Thus the full agent-specific complementary preferences in the ethically inducedconscious economic transformation are the interactively integrated and evolutionary

29Friedman (1960, 1989).

Generalized Economic Evolutionary Equilibrium Caused … 35

joint preferences of all. For example, if℘h denotes household preferences; ℘In

denotes institutional preferences;℘G denotes government preferences as participant,then the complementary unified preference at large is denoted by,

℘ = ∪interaction∩integration[{℘h} ⊗ {℘In} ⊗ {℘G}][θ ] (22)

Thus there are specific solutions for the evolutionary equilibrium vectors as thecoefficients get re-selected with policy alternatives. Thereby, a learning-by-doingexperience is generated over completed processes of interaction, integration, andevolutionary learning. This happens in the light of realizing better wellbeing resultsthat are conformable with the ontology of unity of knowledge implied by comple-mentarities between the variables representing the good things of life as advocated,and rejecting the bad things of life that are contrary to wellbeing.

In this respect of policy and morally/ethically directed choices of simulated coef-ficients the method of Spatial Domain Analysis (SDA) can be used.30 There are alsoother econometric methods suitable for evaluating circular causation for wellbeingfunction as found fitting for ontological relevance of unity of knowledge. The well-being function makes this selection via complementarity between the good things oflife (TRUTH) and rejecting the bad ones (FALSE).

Preferences in Micro-Foundation of Macroeconomics

An important inference derived from the above nature of preferences is that ethicizedpreferences are central to economy-wide decision-making. Therefore, macroeco-nomics needs to be reformulated in reference to microeconomic foundations withthe organically relational concept of dynamic preferences, variables, and their inter-causal functional relations, all induced by ‘θ’. This approach though is different fromthe theory of micro-foundation of macroeconomics.31 The same reason exists for thisimpossibility: There is no endogenous theory of ethics that is embedded in microe-conomics to convey its relevance at the level of macroeconomic reformulation bymicroeconomics in terms of the analytical ethical theory of decision-making.

The inter-causal complementary relationships between ‘θ’, money, spending, andthe other variables shown in the x(θ)-vector of variables yieldmany other endogenouspolicy results in the pure market context.32 Deepening effectiveness of expansionarymonetary policy in market transformation, which is further enhanced by ethicalconsciousness of positive complementary inter-causal linkages means increasingspending absorption of C+I. Y therefore increases. Increase in W(.) responds. Taxrates decline. The circular causation effects continue into sustainability.

30Goodchild (1987).31Horwitz (2009).32Yeager (1997).

36 2 Ontoloical Foundation of the Theory of Economtrics …

In the end, the joint effects of all inter-variable circular causation can be solelydefined by the dynamics of inducing ‘θ’-parameter. Because of the interactive, inte-grative, and evolutionary property of ‘θ’-induction over all. The shapes of the expen-diture curve and LM curve of Keynesian and Hicks formulation cannot be expected.For instance, fiscal policy and monetary policy are not complementary in main-stream macroeconomics for sustaining non-inflationary economic growth. Yet inthe case of econometrics of circular causation in the wellbeing function, increasingspending replacing government expenditure and being related to expansionarymone-tary policy, remain complementary. This signifies the ontological effect of unity ofknowledge in the formulation of microeconomic foundations of macroeconomics.

Conclusion

The philosophical underpinning of the substantive differences between the econo-metrics of circular causation and the conventional postulates of econometrics is basedon how the observer and analyst view the specific problem-domains of the world-system. Even though in all cases the ontological nature of the world-system is seento be probabilistic, yet in the case of conventional econometrics this feature is unre-solvable. The result of such irresolution of the information collected in mainstreameconometric modeling is imprecise. That is because, being encapsulated in the prob-abilistic sense,the axiom of economic rationality must be assumed.Along with theaxiomof economic rationality the ontological premise of rationalism also runs courseby putting a priori knowledge to remain within the bounds of human perception. Yethuman perception is like mind without memory, as it gets denuded of the a prioriontological law of oneness expressed by unity of knowledge.

Economic rationality and a posteriori rationalism, as of Keynes’, cast away thesubtle reality of social inclusiveness,moral/ethical endogeneity, religious and culturaldynamics. This happened despite Keynes’ wish to make economics as the hand-maiden of ethics. Indeed, Keynes was influenced by Moore’s ethical worldview, butdisagreed with metaphysical ethics, and endogenous morality.33 The totality of exis-tential reality is ruptured and decapitated from a system study of reality in its holism.In the econometrics of circular causation, the a priori ontological origin of knowledgeis made to integrate with the a posteriori knowledge of the sensate world-system.Thereby, the integration between a priori and a posteriori knowledge of total unifiedreality captured within soul, mind, and matter remains essential.

This essence of organically unified reality takes up qualitative and quantitativeforms simultaneously in the embedded study of social and economic events. Philo-sophical abstraction is thus subjected to the phenomenology of quantitative evalu-ation. Vice-a-versa, the study of such moral-material events in the phenomenolog-ical realm recursively feeds back into the a priori-a posteriori unified ontologicalworldview. Such a process of recursive cause and effect in continuity of knowledge,

33Moore (1903).

Conclusion 37

space, and time forms the genre of reproduction of unity of knowledge and its conse-quences in the circular causation between endogenously interrelated systems of vari-ables. Thus on integrating the qualitative and quantitative, a priori and a posteriori,moral/ethical and material sensate in econometric modeling, the circular causationmethod of evaluating wellbeing gives a holistic understanding of economic realitywith its moral/ethical social inclusiveness. The degree of predictability intensifiesby being able to read events close to their points of occurrence by the evolutionaryprogress of knowledge, even though a decreasing degree of stochastic uncertaintyremains. Indeed, this gap in perfection capacitates creative learning in sustainablecontinuity of knowledge, space, and time.

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Cantner, U. L., Gaffard, J., & Nesta, L. (Eds.). (2009). Schumpeterian Perspectives on Innovation,Competition, and Growth. New York, NY: Springer Verlag.

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Hull, D. L. (1988). Science as a process, an evolutionary account of the social and conceptualdevelopment of science. Chicago, IL: University of Chicago Press.

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Moore, G. E. (1903). Principia ethica. Cambridge, England: Cambridge University Press.Nelson, R. R., & Winter, S. G. (1985). An evolutionary theory of economic changeUSA, MA:Belknap Press of Harvard University Press, Cambridge.

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Myrdal (pp. 198–205). New York, NY: Harper & Brothers Publishers.Streeten, P. (1981). From growth to basic needs. In P. Streeten (Ed.), Development perspectives.New York, NY: St. Martin’s Press.

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Chapter 3Profit-Sharing Versus Interest Ratein Islamic Economics as Mesoscience

Abstract Islamic economics is a field of mesoscience. What is mesoscience andmeso-economics within it? The following excerpts will explain the underlyingmeaning: “Mesoscience implies there are some underlying principles that can unifydifferent disciplines, and all disciplines may be involved in contributing availabledisciplinarily specific knowledge at corresponding levels to revealing common prin-ciples for meso-scales at all levels. A small change in the angle to view old prob-lems could lead to a big progress in solving them.” [Springer Nature, Engineering(2019). “What is meso-science or mesoscience?” Switzerland.] “Mesoscale here-with refers to a range of scale in between the micro- (element) scale and the macro-(system) scale and, within this range of scale, a characteristic structure exists, namelymeso-structure, featuring dynamic heterogeneity in space and time, which is crit-ical to the performance of the system. Parameters at the mesoscale are neededto bridge the mechanism at the element scale to the behavior of the system. Theobjective of mesoscience is to develop a principle as general as possible to makesuch a bridge for different levels of disciplines…..” [Huang, W. Li, J. & Edwards,P. (2018). “Mesoscience: exploring the common principle at mesoscales”, NaturalScience Review, 5:3, pp. 321–326.] Islamic economics as a scientific field of inquiryembodies in it the moral and material endogenous embedding in the light of theprimal ontological law of monotheism conveying unity of knowledge. The meso-science of this methodological worldview is explained by pervasive complementar-ities, participation, and symbiotic interrelations between the variables representingthe good things of life in the wellbeing criterion cogently explained. The followingdefinition is thereby adopted: “Islamic Economics is neither a microeconomic nora macroeconomic study framed in these mainstream dichotomies. The moral andethical foundation of Islamic economics emerges from the possibility of symbi-otic inter-causality at the mesoscales of methodology, behaviour, applications, andcontinuity. Integrated together by methodological abstraction and applications, theresulting mesoscale phenomenological study presents a distinctive methodologicalworldview of organic unity of knowledge. In the qur’anic terminology this monothe-istic worldview is referred to as Tawhid, the universal Law of unity of knowledgein ‘everything’.” [Choudhury, M.A. (2012). “The ‘Tawhidi’ Precept in Science”,in Muzaffar Iqbal (ed.)Studies in the Islam and Science Nexus Volume I, Ashgate,

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_3

39

40 3 Profit-Sharing Versus Interest Rate in Islamic …

London, Eng.] In regard to its mesoscientific nature, Islamic economics is formallyrendered in regards to the endogenous interrelationship between moral values andthe legal injunctions that are derived from the Qur’an and the guidance of the ProphetMuhammad (sunnah). These two essences of formalism premise mesoscientificreasoning in the foundational ontological origins of its methodology. The emergentmethodology is of the law of oneness explained by symbiotic unity of knowledge ofmonotheistic oneness. This primal ontology of Islamic economics makes this fielda study in participatory endogenous relations in evolutionary learning dynamics ofthe inter-variable, transdisciplinary, andmoral-material interaction and integration asprocesses of evolutionary learning by inter-causal relations between the variables ofthe wellbeing criterion. This process, analytical in nature, leads to formulating howthe primal monotheistic methodology establishes the emergent analytical method ofevaluation (estimation and simulation) of the wellbeing function. This is the formalcriterion that explains the endogenous, that is pervasively complementary and partic-ipatory inter-causal relations between the multivariate vector of the wellbeing crite-rion. Islamic economics in this meso-economic category is a vastly interactive fieldof socio-scientific inquiry. This approach essentially involves moral values and theirexplained, analytical, conceptual, and quantitative organic embedding of materialvalues by the full study of the wellbeing function. One of the arguments and thetheory propounded in Islamic economics is to formalize the principle of avoidanceof interest rate (riba) and its replacement by trade. This is a cardinal qur’anic principle.The profit-sharing rate via trade and exchange in the good things of life is providedas the inviolable replacement. The emergent symbiotic relationship between tradeand the real economy in the midst of phasing out the rate of interest is shown to beactualized by the force of consciousness of belief causing reasoning by knowledgeto induce the process of phasing out interest rate by the profit-sharing rate in anethicizing market venue. The formal model underlying the phasing out of interestrate and its replacement by the rate of profit as the manifestation of deepening tradeis an extensively mesoscientific undertaking. It concerns the ontological conceptual-ization as methodology leading into the evaluative method of a formalized wellbeingfunction. This formalism arises from the ontological premise of the fully endoge-nous participative nature of inter-variable feedback. The vector of selected variablesresults in multivariate inter-causal relations. Such interrelations take the form ofrecursive feedback in the light of their endogenous relations linked with the evalua-tion of the wellbeing function. The wellbeing criterion is ontologically derived fromthe formalism and dynamics derived from the ontological foundation of the organicunity of knowledge of themonotheistic law (Tawhid). This paper will firstly delineatethe methodological theory that emanates from the ontological premise of monothe-istic law of unity of knowledge (Tawhid) in the Qur’an and is epistemologicallymapped by the prophetic guidance (sunnah) into the world-system. Next, the emer-gent methodology will be shown to lead to the formulation of the wellbeing criterion,which is evaluated by inter-variable circular causation relations expressed as equa-tions. The emergent model of evaluation of wellbeing criterion with its inter-variablecircular causation relations forms the resulting formal meso-economic perspective.The empirical problemof inverse relationship between profit-sharing rate and interest

3 Profit-Sharing Versus Interest Rate in Islamic … 41

rate (riba) is thereby studied by Islamic financial data from Islamic banks inMalaysia.Pertinent conclusion is then made on the evidence of moral-material endogeneity ofthe problem of phasing out interest rate by profit-sharing rate by trade in the goodthings of life for attaining evolutionary learning evaluation of wellbeing substan-tively defined as amulti-systemic, multivariate evolutionary learning dynamicmodelpremised on monotheistic organism of unity of knowledge.

Introduction

Profit sharing and its coterminous elements of interest avoidance and its replace-ment by profit-sharing instruments are neither necessary nor sufficient groundworkof Islamic ethical and socially inclusive financing. This can be proved analyticallyconsidering the essentials of the qur’anic precepts of moral and material embed-ding by means of the foundational principle of Tawhid. Tawhid means monothe-istic oneness as the qur’anic law bestowed to the generality and particularity of theuniverse. The analytical proof is derived by invoking the ontological primacy of theQur’an as the foundational universal law of unity of knowledge. Such a concept ofunity of knowledge is explained by the qur’anic worldview of organismic comple-mentarities (Qur’an 36:36) between the system of the good things of life and theirsustainability by virtue of the knowledge-induced learning world-system (Qur’an13:1-5).

The proof regarding the insufficiency of the long-held belief among Islamicscholars on the avoidance of interest and its replacement by certain named finan-cial instruments by the traditional prevalence of the meaning of Islamic Law asthe jurisprudence of shari’ah is debated on qur’anic and analytical grounds in thispaper. The implication is thereby broader than what has been upheld by shari’ahscholars and so-called ‘Islamic economics and finance’ in its blatant belief on profit-sharing as they understand it as the substitute for riba-concept and riba-financing. Thequr’anic precept and its ineluctable Tawhidi meaning of organic unity of knowledge,as between trade, riba, profit-sharing, and debt-financing has not been recognized.Thereby, the underlying methodology and method of circular causation between themultivariates in the Islamic objective criterion of the wellbeing function (maslaha)has not been invoked to understand the organic meaning of unity of knowledge thatemanates and functions in respect of the law of Tawhid in such an emergent method-ology and method. Consequently, the ideas of profit-sharing, trade, riba, and debtremain questionable in contradistinction to the underlying meaning in the Qur’an(2:275, 265–281) in respect of the holistic systemview ofmorality/ethics, commerce,and sustainability that is bestowed.

The formula for profit-sharing (℘ i) of the ith partner used by Islamic economists,shari’ah scholars, and Islamic financial institutions is this:

℘ i = πi/π, with ‘i’ denoting sharing partners in the total profit of the conglomerate(π) in proportion to their individual profits (πi), i = 1,2,…,n.

42 3 Profit-Sharing Versus Interest Rate in Islamic …

Thereby, the average profit-sharing rate is denoted by, ℘ = (1/n)Σni=1℘i = π/n.

In this sense of lateral aggregation of the profit-sharing rates to obtain the averageprofit-sharing rate, no demand is made on the interaction and thereby interactivelygenerated integration between the profit-sharing rates. The implication of indepen-dence between the rates also implies the same nature of lateral independence topartners by such an additive nature of the agents and the rates as variables. Theimplication of lateral independence is extended to the similar nature of preferenceformation in institutions of profit-sharing.

Contrasting Mainstream Islamic Economicswith the Tawhidi Methodological Worldview

Next we compare the meanings of the lateral independence of the terms of averageprofit-sharing rates and thereby of the participants and their institutions in respect ofthe theory of riba (interest). The Qur’an (59:7)1 declares sharing as a participatorydynamic of distribution resulting by and in inter-causality of the multitude systemicdynamics. Profit-sharing contrary to riba is an instrument of attaining and sustainingin such a system of interactive integration of sharing and progressing into higherlevels of piety and progress therein. Profit-sharing contrary to riba must therebyreflect its negation of the lateral addition method in computation, which therebyreflects lateral independence between participants and their institutions coveringsociety as a whole. Organic learning of unity of knowledge is thus negated betweenthese various elements of moral and social inclusiveness that the Qur’an invokes inits meaning of resources and their integrative distribution.

Riba is a financing instrument that exists in exclusive aspect of resource allocationwith the real and learning economy by virtue of the principle of unity of knowledgein the evolutionary learning field. Let us understand this point. Wealth as resource ismaximized for profit in the neoclassical economics ofmarginal rate of substitution bymaking the financial economy and the real economy as marginalist ways to allocatewealth. Thus the marginal rate of substitution between the financial sector that yieldsriba and the real economy sector that yields economic yields causes these sectors to beindependently competing ones. Resources flow in mutually exclusive ways either toone or the other sector causing competition, marginalism, and lateral independenceof relationship between them. This phenomenon is a permanent attribute of theneoclassical perspective of marginalist yields between the two sectors. The financialsector yields riba (i); the real sector yields economic returns(r). ‘i’ is the yield onfinancial transactions of monetary resource as wealth. ‘r’ is the return on the prices

1Qur’an (59:7): What Allah has bestowed on His Messenger (and taken away) from the people ofthe townships,-belongs to Allah,-to His Messenger and to kindred and orphans, the needy and thewayfarer; In order that it may not (merely) make a circuit between the wealthy among you. So takewhat the Messenger assigns to you, and deny yourselves that which he withholds from you. Andfear Allah; for Allah is strict in Punishment.

Contrasting Mainstream Islamic Economics … 43

of real economic transactions where profits are generated by the price, output, andquality of real transactions.

The resulting smooth surface of optimal allocation of wealth as resource isexplained by the marginal rate of substitution between the real sector (R) and thefinancial sector (F). These sectors generate their sectoral incentive by their relativeyields. This is shown by the formula of marginal rate of substitution, −dR/dF = i/r.This formula on sectoral yields is benign of inter-sectoral learning by interaction andintegration and evolution that would be otherwise caused by flows between the twosectors, causing inter-sectoral flows of resources to occur and be sustained. To allowfor such evolutionary learning between R and F along the optimal allocation surfaceof F and R and along the expansion path of (R, F) inter-causal relations is impossiblein the neoclassical sense of optimality. Evolutionary learning by inter-causal organicrelations between R and F causes the neoclassical type optimal surface and thusoptimal allocation ofwealth as resource to be impossible for conception andmeasure-ment. Thus in the face of lateral sectoral independence the profit-sharing rate in thereal economic sector remains a marginal substitute with the financial sector and vice-a-versa. This result proves the case that, the pursuit of so-called ‘Islamic economics’in the mainstream economic garb treats the notion of profit-sharing rate just as a riba-category according to the lateral independence characteristic of neoclassical theoryof wealth as resource allocation between R and F.

Next, let us understand what the profit-sharing rate as legitimate replacementof riba would mean in the qur’anic meaning of trade as exchange. The Tawhidimethodology contrary to the shari’ah meaning of profit-sharing as promoted byshari’ah scholars and Islamic economists in general, explained above, is that oforganic unity of knowledge between multivariates that together explain the inter-causality of such variables with the profit-sharing rate.

Formalism

Thus, let the vector of knowledge-induced (θ) vector of variables be denoted by {℘,(r/i), R, F, R/D, θ}[θ]. The Tawhidi organic interrelationship is methodologicallyintroduced in the form of unity of knowledge denoted by ‘θ’ inducing commonlyall the variables as evolutionary learning categories. The variables are constructed inthe form of their acceptable choices as the good things that would interrelate expect-edly with positive correlations and coefficients between them. Analytical results andpolicy conclusions can thereby be drawn. The presence of ‘θ’ inducing all the vari-ables signifies the degree to which complementarities as evolutionary learning canbe estimated and simulation possibility done in the system of inter-causal equationsbetween the endogenous variables.

In the especial case of determining the profit sharing rate in this case of inter-causalrelations between the variables as the organic meaning of evolutionary learning interms of unity of knowledge by ‘θ’, the corresponding equation is,

44 3 Profit-Sharing Versus Interest Rate in Islamic …

℘(θ) = f((r/i),R,F,R/D, θ)[θ] (3.1)

In the whole vector of endogenously related inter-causal variables, while ℘(θ) isso defined, there are also the reverse causality between ℘(θ) and the other variables.This makes the entire endogenous system of circular causation relations to be fullyexplanatory in the determination of ℘(θ) and the other variables. We thereby writethe whole system of endogenous inter-variable circular causal relations as,

℘(θ) = f1((r/i),R,F,R/D, θ)[θ] (3.2)

(r/i)(θ) = f2(℘,R,F,R/D, θ)[θ] (3.3)

R(θ) = f3(℘, r/I,F,R/D, θ)[θ] (3.4)

F(θ) = f4(℘, r/I,R,R/D, θ)[θ] (3.5)

(R/D)(θ) = f5(℘, r/I,R,F, θ)[θ] (3.6)

The last of the circularly related inter-causal equations is,

θ = f6(℘, r/I,R,F,R/D)[θ] (3.7)

Equation (3.7)means that θ-values are generated parametrically in relation to someform of averaging between the other variables as an indicator of complementaritiesbetween the variables. The methods deriving such parametric values in all cases—oftime series, cross-sectional and meso-data are shown in the actual empirical work.Because ‘θ’ denotes knowledge as the indicator of wellbeing, it therefore representsa simplified version of the wellbeing function in the Tawhidi sense of degrees ofestimated unity of knowledge and the simulation possibility gained thereby alongthe evolutionary learning path of new sets of θ-values over knowledge, space, andtime dimensions.

The system of endogenously related variables in the circular causal relations(3.1–3.7) needs to be evaluated together. The results on the signs of coefficientsand the degrees of inter-correlation thereby determine the causes and effects, and thedegrees of inter-variable complementarities required for a simultaneous and sustainedevolution of such relations. The methodology of Tawhidi law of organic unity ofknowledge is thus invoked as themethodology implementedby the evaluationmethodused for the system of Eqs. (3.1–3.7). Bymeans of this explanatory analytical systemof evaluated equations the definition and quantitative measure of the profit-sharingrate contra riba is determined as an organic relational indicator. The shari’ah invokedmethodology and method of lateral independence between the variables is replacedby Tawhid as the law of intrinsic pairing (complementarities by unity of knowledge,Qur’an 36:36).

Formalism 45

It is expected of the coefficients of the log-linear transform of the system ofEqs. (3.1–3.7) by estimation or simulation to have positive signs and positive corre-lations. This is the same as the inter-variables having positive partial elasticitycoefficients (∈ij, i, j = 1.2…), as shown below:

℘(θ) (r /i) R F R/D θ

+ + + + + +℘(θ) 1 ∈12 ∈13 ∈14 ∈15 ∈16

(r /i) ∈21 1 ∈23 ∈24 ∈25 ∈26

R ∈31 ∈32 1 ∈33 ∈34 ∈35

F ∈41 ∈42 ∈43 1 ∈44 ∈45

R/D ∈51 ∈52 ∈53 ∈54 1 ∈55

θ ∈61 ∈62 ∈63 ∈64 ∈64 1

(3.8)

Expression (3.8) and thereby the system of Eqs. (3.1–3.7) have important empir-ical implications of inter-variable endogenous circular causation relations. Forinstance, ∈12 > 0 implies that, profit-sharing rate is monotonically related to (r/i).This in turn means that real returns increase (decrease) corresponding to riba-ratedecreasing (increasing). Likewise, as R and F correlate positively so also theycontribute positively to profit-sharing rate. The positive relation of such a trend to(r/i) is thereby inferred.

The system of equations rounding off with expression (3.8) furthermore estab-lishes the methodological nature of embedding betweenmoral andmaterial elementsinduced by Tawhidi unity of knowledge. This result is shown by the fact that, just asthe knowledge parameter ‘θ’ is causally determined by the explanatory knowledge-induced variables, so also in the system of circular causation equations every vari-able is causally explained by the knowledge-variable. The way of calculating the‘θ’-parameter in terms of the prorate calculation based on the inter-variable set ofdata is shown in the empirical part of this chapter. Thus the Tawhidi law of unityof knowledge as the ontological principle of unity of knowledge between the mate-rial and moral/ethical variables is shown to be a functional reality in socio-scientificproblems. Here this point is exemplified by the study of profit-sharing as an organicrelationship with moral and ethical variables. Indeed, this principle of organic unityof knowledge between all variables is a universal phenomenon. It applies to allsocio-scientific problems.2

The circular causation unitary and universal nature of Tawhid as law of ‘every-thing’ is not found in any version of shari’ah as it has evolved in juristic context byhuman concocted notions rather than by deep ta’wil (deeper meaning) of Qur’an.Shari’ah approach has thus failed to establish the socio-scientific analytics in theiruniversal and unique form, as has Tawhid as law of unity of knowledge in a perfectlyinter-relational and thereby complementary world-system of moral-material inter-causality by endogenous embedding. This property of the Tawhidi world-system

2Choudhury (2019).

46 3 Profit-Sharing Versus Interest Rate in Islamic …

derives the system of Eqs. (3.1–3.8). The contrast between the primal ontology ofTawhid as law and shari’ah as a juristic beginning is pointed out byNasr: “Someof thescholars of the religious sciences criticized falsafah (philosophy) simply because itstood outside of the domain of the shari’ah with which they were solely concerned.”3

The Case of Debt, Riba, and Profit-Sharing in the FormalModel

An important relationship of profit-sharing rate is to (R/D)-variable. The expectedpositive coefficient and correlation coefficients between ℘ and (R/D) would meanthat, increasing real sector activity by a continuous flow of finances into the realsector will reduce the debt financing by meeting the demand by the supply of fundsfrom the financial sector. Furthermore, recycling back the real sector yield into finan-cial resources by the increasing wealth will sustain the R and F complementarity.Consequently, lower debt-financing remains and is liquidated by the recycling of thehigher real sector yields between R and F. Such activities together enhance ℘. Theensuing complementarities between all positively related activities is caused by thepermanent presence of the methodology of unity of knowledge denoted by ‘θ’.

The recursive inter-variable effects of ℘ and the other variables can be noted inorder to fully explain the dynamics of the whole log-linear system of Eqs. (3.1–3.7). The estimated and simulated values (evaluation) of the inter-variable relationsare signified by the elasticity coefficients. The ensuing total analytical picture onstatistical evaluation establishes the organic inter-causal relations within which istaken up the meaning and evaluation of the profit-sharing indicator while resolvingthe problem of lateral independence character of the profit-sharing indicator.

Some Conceptual Issues Relating to Circular CausationRelations Between the Variables {R/I, R, F, R/D, θ}[θ]

To notice the circular causal relations of the inter-variables with ℘ now being anexplanatory endogenous variable, we first explain the positive relationship between℘ and the other variables in the endogenously inter-related system. The positiveregenerative effects of {r/i, R, F, R/D, θ}[θ] by sustained recycling through theincreasing effects of r, R, F with relatively decreasing ‘i’ and D sustains the circularcausation between the F and R sectors in the face of increasing (r/i). The endoge-nously enhancing effect by circular causation between the variables in the F andR interrelationship is caused by the sustained induction of all the variables by θ-effect. Note that all variables are commonly induced by ‘θ’-parameter as knowledgeindicator arising from the spring of Tawhidi ontological consciousness.

3Nasr (2006).

Some Conceptual Issues Relating to Circular … 47

The last Eq. (3.8) is the measurement and explanation of the empirical evaluationof Eq. (3.7) in the system of Eqs. (3.1–3.8). The meaning conveyed in this equation isthat, thewellbeing of the attenuating socio-scientific system described by the positivecomplementarities between the inter-variable circular causation is represented by theinherent knowledge-function as the wellbeing function. This criterion measures thedegree of complementarities that is expected to exist by positive organic relationsbetween the interacting, integrating, and evolutionary learning along the path ofcontinued sustainability of the vector {℘, (r/i), R, F, R/D, θ}[θ].

The evaluation (estimated and simulation) of the system (3.1–3.7) represents theoverall result of inter-variable complementarities by circular causation as the endoge-nous character of the learning variables in unity of knowledge. The same equationsgenerate the individual values in the table of the vector {℘, (r/i), R, F, R/D, θ}[θ].

The result of sustainability between the inter-variables, i.e. intra-system at a givenpoint of time, space, and knowledge distribution as shown above can nowbe extendedto the inter-system results over time. Thus intra-system evaluation of the vector ofvariables yields its inter-state evaluationover knowledge, space, and timedimensions.The reference vector now is denoted by, {℘, (r/i), R, F, R/D, θ}[θ]t over time t.

Figure 3.1 explains the details of the inter-system movement of sustained intra-system nature of relationships along evolving fields of learning by knowledge-induction.

S(θ) = (1, 2, 3, 4, 5) denotes the intra-system of interactive- integrative regioncommon to all the sets of variables at a givenpoint of time.The θ-value is a constructedcomplementary value that is averaged over {θ1, θ2, θ3, θ4, θ5} corresponding to therespective socio-economic variables. In this way the data table for {℘, (r/i), R, F,R/D, θ}[θ] is completed.

The evolution of S(θ(t)) over time ‘t’ and sustained by θ(t)-values is the inter-systemic case of sustainability over knowledge, space, time dimensions. The propertyfor this is given by, (d/dt)[dS(θ(t))/dθ > 0. Thus in terms of a figure the evolutionary

1 2 1 denotes { ( 1)}. { 1} are specific to

5 3 data column for { }

2 denotes {r/i( 2)}. { 2} are specific to

data column for {r/i}

3 denotes {R( 3)}. { 3} are specific to

4 data column for {R}

S( )=1,2,3,4,5 4 denotes {F( 4)}. { 4} are specific to

data column for {F}.

5 denotes {(R/D)( 5)}. { 5} are specific

to data column for {R/D}

Fig. 3.1 Interactive-integrative endogenous variables in circular causation

48 3 Profit-Sharing Versus Interest Rate in Islamic …

H

S( ) dS( )/d > 0.

H

θ θ θ

Fig. 3.2 Interactive, integrative, and evolutionary nature of S(θ)

character of the interactive and integrative S(θ) taken both intra-system (at a pointof time) and inter-system (over time) is shown as follows:

Figure 3.3 brings Fig. 3.2 to bear on the inter-systemic sustainable evolutionof learning events (E(θ, x(θ))t across the knowledge {θ}, space {x(θ)}, and time(t) dimensions. The inter-system nature of evolutionary learning causes the eventsto be interactive and integrative across systems encountered along the interactive,integrative, evolutionary (IIE) learning processes along History, HH. The continuityof evolutionary learning through interactive leading to integrative experience acrossthe History of evolutionary events shown along HH, causes non-existence of optimaland steady-state equilibrium of resource allocation in maximizing wealth. Thereby,both the neoclassical postulate of optimal allocation of resources tomaximizewealth;and the Islamic economic notion of lateral independence in the calculation of optimalprofit-sharing rate are rejected from acceptance. All that prevails are the continuouslyevolutionary knowledge by learning in circular causation across HH. The nature ofsuch evolutionary convergences of equilibriums along HH is shown in Fig. 3.4.

Learning Process 1 (HHp(S(θ))t at a specified point or period of time, t = 1, 2, 3,…; process p = 1, 2, … and system S(θ):

Hpt

Hpt

S(θ) causes the events E(θ,x(θ))t over dispersion of {HHp(S(θ))}t intra-systemically.

The interactive, integrative, and evolutionary continuous sustainability ofprocesses along HHp(S(θ)t) over time-driven History HH is shown in Fig. 3.3. In

Some Conceptual Issues Relating to Circular … 49

En H

H

E1 E2

Inter-systemic evolu�on of events {E(θ θ θ,x( ))}t in sustainability across {HHp(S( ))}t

Fig. 3.3 Construction of the complex nature of interactive, integrative, evolutionary (IIE) Historyof learning events sustained in knowledge, space, and time dimensions as by inter-causal vector ofendogenous variables, {℘, r/i, R, F, R/D,θ}[θ]t

H

H

Fig. 3.4 Evolutionary convergences along the Event-History {HHp(S(θ))}

the continuous case of (HHp(S(θ))t over knowledge-flows and time the multipleconvoluted integrals can apply but with a higher level of mathematical difficulty.4

We note that {HHp(S(θ))}t now appears as a fibroid in knowledge, space, and timedimensions. The neoclassical,mainstream, and Islamic economic postulates of lateralindependence of profit-sharing rateis fully negated. Thereby, the intrinsic circularcausation relations between endogenous variables shown in the system of Eqs. (3.1–3.7) and by elasticity coefficients in Eq. (3.8) rejects the other quantitative ways ofcalculating the profit-sharing rate with an organic meaning. The Tawhidi ontologyof unity of knowledge thus fully annuls the other postulates and their imminentquantitative implications.

Within the fibroid events of {HHp(S(θ))}t there exist multiple evolutionary equi-libriums as evaluated by the system of Eqs. (3.1–3.7). In the especial case of conver-gence of℘-values along the HH-trajectories but being driven by θ-values to maintainsustainability, the evolutionary convergence of {℘(θ)} along with the other endoge-nous variables is shown by the permanent evolutionary nature of such equilibriumswithout there being attainment of steady-state equilibrium. Figure 3.4 depicts thenature of such evolutionary convergence for learning equilibriums of the variablesas by the continuous estimation and simulation of the circular causal solutions ofEqs. (3.1–3.7). Such properties of the profit-sharing rate in relation to other endoge-nous variables cannot be explained by the crass treatment of profit-sharing rate inconventional economics and this perspective used in Islamic economics.

4(HHp(S(θ))t = ∫conv{θ}

∫conv{x(θ)}

∫t W{θ, x(θ), t}dx(θ)dθdt, with W denoting the wellbeing func-

tion over knowledge, space, and time dimensions. The wellbeing function is a non-linear functionof {θt,t}. Non-linearity property of all the variables and functions shown in Eqs. (3.1–3.7) andelsewhere means the jointly stochastic nature of the coefficients and the variables.

50 3 Profit-Sharing Versus Interest Rate in Islamic …

H1 H2 H3 Hn

{θ θ

θ θ θ θ θ θ

θ θ}: 1 2 n Knowledge

{x( )}: S1( 1) S2( 2) Sn( n) Space (evolu�onary evalua�on of { ,x( ),t}

t: t=1 t=2 t=n Time

Fig. 3.5 Transcendence of intra-systemic results across sustainability of knowledge, space, andtime dimensions

The sustainable inter-system extension of the intra-system case of evaluation ofthe system (3.1–3.7) proceeds in two stages. Firstly, the system (3.1–3.7) is evaluatedover specified periods of time, as in the case of periodic evaluation of profit-sharingrate over specified periods of time. Secondly, the results arising from the periodicevaluation of Eqs. (3.1–3.7) are used to generate the time-trend of the periodic evalu-ated results for the system of Eqs. (3.1–3.7). Figure 3.5 explains such a two-prongedcase of evaluating the vector x(θ) = {℘, r/i, R, F, R/D, θ}[θ]t.

The sustainable evolution of the evaluation results of Eqs. (3.1–3.7) over knowl-edge, space, and time dimensions is repeated by the method similar to the recur-sive circular causation between the endogenous variables. In the present case thetime-trend extension is applied to the extended vector, {{θ}, {x(θ)}}t in the samecircular causation relations between these vector of variables. Thus the transcen-dence of Tawhidi unity of knowledge is found to determine the entire sustainabilitypath of {HHp(S(θ))}t both in the intra-system and the inter-system cases of theorganic relational nature of interactive, integrative, and probabilistic evolutionarylearningprocesses. The continuity and repeated evaluationof the intertemporal eventsin {HHp(S(θ))}t poses a complex and difficult quantitative and interpretive task.Such advanced and complex quantitative work can be carried out by evolutionarycomputing5 and methods of Brownian Motion.6

Econometric Application

Equations (3.1–3.7) are estimated bymeans of the log-linear forms of the f-functions.The equations are converted to make them amenable to estimation.

ln(℘) = C1 + a1∗In(r/i) + a2∗ ln(R/F) + a3∗ ln(R/D) + a4∗ ln θ (3.9)

ln(r/i) = C2 + b1 ∗ ln(℘) + b2 ∗ ln(R/F) + b3 ∗ ln(R/D) + b4∗ ln θ (3.10)

ln(R/F) = C3 + d1 ∗ ln(℘) + d2 ∗ ln(r/j) + d3 ∗ ln(R/D) + d4 ∗ ln θ (3.11)

5Fogel (1995).6Feynman (1964).

Econometric Application 51

ln(R/D) = C4 + e1∗ ln(℘) + e2∗ ln(r/j) + e3∗ ln(R/F) + e4∗ ln θ (3.12)

ln θ = D1 + D2∗ ln℘ + D3∗ ln(r/I) + D4∗ ln(R/F) + D5∗In(R/D) (3.13)

The variables are derived from the following data for Malaysia as follows for theperiod March 2015 (Quarter 1) to end of 2018 (last available Quarter) by last day ofevery Quarter:

xc-values across data columns ‘c’:

℘ CP09, Islamic Banking data, ‘Net Profit Margin’ (rate)r (CP07 + CP08)/2, Islamic Banking data, ‘(Return on Assets, ROA) + (Return

on Equity, ROE)/2’F CP19, Islamic Banking data, ‘Total Financing at End of Current Period’R CP08, Islamic Banking data, ‘Gross Income’D CP14, Islamic Banking data, ‘Short-Term Liabilities’‘i’ from Interest Rate Table for the last day of every Quarter starting March 31

(Quarter 1) 2015 to last available Quarter (last day) 2018.‘θc’ for each column entry across the list of variables is calculated as, Prorata values,

θc = (θ∗c/x

∗) · x; θc∗ = 10 for the best acceptable value of xc = x∗c Thereby,

Average′θ′c

(across columns ′c′) = (1/4)Σ4

c=1θc

The data table is thus constructed completely as,

Natural logarithmic transformation of these (xc,θc)-values and θ-values

Time x1 θ1 x2 θ2 x3 θ3 x4 θ4 Average ‘θc’

t ℘ θ1 (r/i) θ2 (R/F) θ3 (R/D) θ4 1/4Σ4c=1θc

The empirical estimations based on OLS method and using the full table withcomputed θ-values as ranks by pro-rating in terms of the x-explanatory values areshown in the appendix.

The following method of prorating θ-values as ranks is used: The construction ofthe table shows that each of the variables is induced by its own column ‘θc’-valuealong with the maximum value, θc = θ* for each of the columns. Thereby, each ofthe column xc-value is induced by the prorated {θc}-knowledge-values, meaning thebest attained values of unity of knowledge among the variables as prorated by themaximum values of the respective columns.

52 3 Profit-Sharing Versus Interest Rate in Islamic …

Exogenous nature of variables in Islamic econometric models a la mainstreameconomics

Islamic banks and shari’ah-based Islamic economics claim that Islamic business isdone in the absence of riba (interest). To Tawhid as law, riba-abolition is a goal thatcan at best be attained as a learning phenomenon along the evolutionary processes ofevents in {HHp(S(θ))}t. Indeed, in reality of financial globalization it is evident thatIslamic finance is deeply entangled with international capital markets and financialinstitutions. 7 The prime rates of interest of central banks in Muslim countries affectthemonetary policies. This in turn causes fractionalmonetary system to affect Islamicbanking system. TheQur’an (2:286) allows its votaries to relinquish forbidden thingsgradually along the path of evolutionary learning towards attaining the target of purityand piety: “Allah does not charge a soul except [with that within] its capacity. It willhave [the consequence of]what [good] it has gained, and it will bear [the consequenceof] what [evil] it has earned.” “Our Lord, do not impose blame upon us if we haveforgotten or erred. Our Lord, and lay not upon us a burden like that which You laidupon those before us. Our Lord, and burden us not with that which we have noability to bear. And pardon us; and forgive us; and have mercy upon us. You are ourprotector, so give us victory over the disbelieving people.”

Therefore, in the Eqs. (3.1–3.8) or Eqs. (3.9–3.13) according to shari’ah approachof Islamic economics, the variable ‘i’ remains independent of all other variables. Todemonstrate this in one case the profit-sharing equation in the shari’ah implication iswritten as,℘ = f(r, i, R, F,D),with no analytically formalized presence of ‘θ’ inducingthe variables. In this expression ‘i’ has its exogenous effect on ℘, but profit-sharingrate does not affect interest-rate because of their mutual exclusiveness in an Islamicmarket.8 Islamic financial data do not publish interest rates relative to profit-sharingrate. This feature of shari’ah financial-economic thinking rules out the reality ofreconstructing the riba-market into progressively transformed profit-sharing marketby evolutionary learning., as by the endogenous effect of ‘θ’.

7Roy (2006).8This feature though is not of neoclassical economics where ‘i’ can be market-determined in thepresence of its marginal rate of substitution with ℘ and r without the continuous sustainability ofevolutionary learning effect of ‘θ’. In the case of sustainable continuity effect to prevail by evolu-tionary learning, the neoclassical optimal surfaces (e.g. indifference curve, welfare function surface,production possibility curve, production factor isoquants, etc.) become fuzzy and dysfunctional inoptimal and equilibrium analysis of neoclassical economic theory.

Appendix: Empirical Estimates 53

Appendix: Empirical Estimates

OLS (With θ)

Inθ = 0.82858697 phi + 10.4235672 r/i + 1.18330249 F + 0.35321922 gR/D + 1.14324027 + e

t Stat (5.86067062) (6.29108701) (20.1264505) (18.2094453) (30.6061841)

R2 = 0.99194735

phi = −6.2171615 r/i − 1.0868443 F − 0.3228079 gR/D + 0.85739878 In θ − 0.924107 + e

t Stat (−2.1830873) (−7.2143365) (−6.933344) (5.86067062) (−4.8010316)

R2 = 0.90732685

r/i = −0.0787745 F − 0.0231696 gR/D + 0.07086803 In θ − 0.040849 phi − 0.0821979

t Stat (−4.8831477) (−4.6523598) (6.29108701) (−2.1830873) (−6.4661049)

R2 = 0.92306659

F = −0.2919995 gR/D + 0.81686046 In θ − 0.7250612 phi − 7.9984147 r/i − 0.922944

t Stat (−16.286912) (20.1264505) (−7.2143365) (−4.88314477) (−13.660187)

R2 = 0.97908611

gR/D = 2.71641176 In θ − 2.3991131 phi − 26.208127 r/i − 3.2529789 F − 3.0905566

t Stat (18.2094453) (−6.933344) (−4.6523598) (−16.286912) (−14.342287)

R2 = 0.97456844

Inter-correlation Table

lnTetha phi r/i F gR/D

lnTetha 0.82858697 10.4235672 1.18330249 0.35321922

Phi 0.85739878 −6.2171615 −1.0868443 −0.3228079

r/i 0.07086803 −0.040849 −0.0787745 −0.0231696

F 0.81686046 −0.7250612 −7.9984147 −0.2919995

gR/D 2.71641176 −2.3991131 −26.208127 −3.2529789

Data Table

Time Phi r/i F gR/D LnTetha

2013Q4 0.38 0.031 0.207 0.67 2.264305296

2014Q1 0.40 0.031 0.204 0.073 2.065497077

2014Q2 0.39 0.029 0.194 0.069 2.029018195

(continued)

54 3 Profit-Sharing Versus Interest Rate in Islamic …

(continued)

Time Phi r/i F gR/D LnTetha

2013Q3 0.40 0.026 0.178 0.070 1.962297245

2014Q4 0.39 0.026 0.190 0.074 1.980778972

2015Q1 0.36 0.023 0.210 0.066 1.960443917

2015Q2 0.38 0.024 0.203 0.124 1.99522551

2015Q3 0.38 0.025 0.199 0.138 2.013989793

2015Q4 0.38 0.025 0.161 0.144 1.969881207

2016Q1 0.42 0.027 0.122 0.145 1.965301053

2016Q2 0.38 0.024 0.118 0.145 1.898194951

2016Q3 0.38 0.025 0.094 0.144 1.882112081

2016Q4 0.39 0.026 0.114 0.163 1.933404445

2017Q1 0.45 0.029 0.120 0.168 2.010128749

2017Q2 0.41 0.027 0.116 0.174 1.972876979

2017Q3 0.43 0.028 0.117 0.153 1.993264571

2017Q4 0.43 0.028 0.103 0.172 1.975040269

2018Q1 0.34 0.024 0.113 0.197 1.87025219

2018Q2 0.39 0.026 0.114 0.186 1.933953309

SUMMARY OUTPUT

Regression statistics

Multiple R 0.99596554

R Square 0.99194735

Adjusted R Square 0.9896466

Standard error 0.00853166

Observation 19

ANOVA

df SS MS F Significance F

Regression 4 0.1255293 0.03133233 431.139648 1.74426–14

Residual 14 0.00101905 7.2789E−05

Total 18 0.12654335

Appendix: Empirical Estimates 55

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

1.14324027

0.03735324

30.6061341

3.1653E−1

41.06312553

1.22335501

1.06312553

1.22335501

phi

0.82853697

0.14133091

5.86067062

4.1413E−0

50.52535507

1.13131338

0.52

53550

71.13131338

r/i

10.4235672

1.65637356

6.29103701

1.9843E−0

56.8699161

13.9772133

6.8699161

13.9772133

F1.18330249

0.0587934

20.1264505

9.8726E12

1.05720318

1.30940179

1.05720318

1.30940179

gR/D

0.35321922

0.01939758

18.2094453

3.8194E−1

10.31161555

0.3943229

0.31161555

0.3943229

56 3 Profit-Sharing Versus Interest Rate in Islamic …

SUMMARY OUTPUT

Regression statistics

Multiple R 0.95253706

R Square 0.90732685

Adjusted R Square 0.8808488

Standard error 0.00867873

Observation 19

ANOVA

df SS MS F Significance F

Regression 4 0.01032404 0.00253101 34.2671403 4.3156E−07

Residual 14 0.00105448 7.532E−0S

Total 18 0.01137353

Appendix: Empirical Estimates 57

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

−0.924107

0.19243093

−4.6010316

0.00023202

−1.3369375

−0.5112765

−1.3369375

−0.5112765

r/i

−6.2171615

2.3473753

−2.1830873

0.0465514

−12.325248

−0.1090754

−12.325248

−0.1090754

F−1

.0868443

0.15065062

−7.2143365

4.4642E−0

6−1

.4099577

−0.7637308

−1.4099577

−0.7637308

gR/D

−0.3226079

0.04655377

−6.933344

6.9451E−0

6−0

.4226666

−0.2229493

−0.4226666

−0.2229493

LnT

etha

0.85739378

0.14629704

5.86067062

4.1413E−0

50.54362233

1.17117473

0.54362233

1.17117473

58 3 Profit-Sharing Versus Interest Rate in Islamic …

SUMMARY OUTPUT

Regression statistics

Multiple R 0.96076355

R Square 0.92306659

Adjusted R Square 0.90108562

Standard error 0.00070348

Observation 19

ANOVA

df SS MS F Significance F

Regression 4 8.3123E−05 2.0732E−05 41.9933395 1.1902E−07

Residual 14 6.9283E−06 4.9488E−07

18 9.0056E−05

Appendix: Empirical Estimates 59

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

−0.0821979

0.01271212

−6.4661049

−1.4826E

−05

−0.1094627

−0.0549331

−0.1094627

−0.0549331

F−0

.0787745

0.01613192

−4.8831477

0.00024179

−0.113374

−0.044175

−0.113374

−0.044175

gR/D

−0.0231696

0.00498018

−4.652

3598

0.00037341

−0.033851

−0.0124882

−0.033851

−0.0124882

LnT

etha

0.07086803

0.01126483

6.29108701

1.9848E−0

50.04670737

0.09502868

0.04670737

0.09502868

phi

−0.040849

0.01871157

−2.1830873

0.0465514

−0.0809813

−0.0007167

−0.0809813

−0.0007167

60 3 Profit-Sharing Versus Interest Rate in Islamic …

SUMMARY OUTPUT

Regression statistics

Multiple R 0.9894878

R Square 0.97900611

Adjusted R Square 0.97311071

Standard error 0.00703869

Observation 19

ANOVA

df SS MS F Significance F

Regression 4 0.03293316 0.00823329 163.862002 1.3744E 11

Residual 14 0.00070347 5.0248E−05

Total 18 0.03363663

Appendix: Empirical Estimates 61

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

−0.922944

0.06756452

−13660187

1.7434E−0

9−1

.0678554

−0.7780325

−1.0678554

−0.7780325

gR/D

−0.2919995

0.01792347

−16.286912

1.7048E−1

0−0

.3304522

−0.2535467

−0.3304522

−0.2535467

LnT

etha

0.81636046

0.04063641

20.1264505

9.8726E−1

20.72931126

0.90390966

0.72931126

0.90390966

phi

−0.7250612

0.10060232

−7.2143365

4.4642E−0

6−0

.9406183

−0.5095041

−0.9406183

−0.509

5041

r/i

−7.9984147

1.6379629

−4.8831477

0.00024179

−11.511496

−4.4853337

−11.511496

−4.4853337

62 3 Profit-Sharing Versus Interest Rate in Islamic …

SUMMARY OUTPUT

Regression statistics

Multiple R 0.98720233

R Square 0.97456344

Adjusted R Square 0.96730228

Standard error 0.0236597

Observation 19

ANOVA

df SS MS F Significance F

Regression 4 0.30032106 0.07508026 134.124267 5.3818E−11

Residual 14 0.00733694 0.00055978

Total 18 0.308158

Appendix: Empirical Estimates 63

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

−3.0905566

0.21543562

−14.342287

9.1974E−1

0−3

.5527273

−2.6283859

−3.5527273

−2.6283859

LnT

etha

2.71641176

0.14917598

18.2094453

3.8194E−1

12.39646111

3.0363624

2.39646111

3.0363624

phi

−2.3991131

0.3460254

−6.933344

6.9451E−0

6−3

.1412638

−1.6569625

−3.1412638

−1.6569625

r/i

−26.208127

5.63329742

−4.6523598

0.00037341

−38.290348

−14.125905

−38.290348

−14125905

F−3

.2529789

0.19972963

−16.286912

1.7043E−1

0−3

.6813563

−2.8246015

−3.6813563

−2.8246015

64 3 Profit-Sharing Versus Interest Rate in Islamic …

Estimation with and without the separate functioning of θ -values

In econometric estimation of the ‘θ’ knowledge-induced (ranked)wellbeing function,subject to circular causation relations, there is good reason to avoid the inclusion ofthe θ-variable separately. That is because, the θ-values being based on the x(θ)-valuesby prorating, this could introduce the problem of multicollinearity in the estimation.Therefore, an alternative set of estimation of the circular causation relations is doneto avoid this problem of bias in the coefficients by dropping the separate inclusion ofθ-variable. However, in either case of econometric estimation with and without theseparate θ-functioning in the system of circular causation relations, the quantitativeform of the wellbeing function, that is ν(θ)→θ = W(x(θ)), remains intact.

We therefore evaluate the wellbeing function both with and without the inclusionof θ-variables separately.

OLS (Without θ)

phi = 9.39319434 r/i − 0.2496185 F − 0.0689235 gRD + 0.1937552 + e

t Stat (5.19133944) (−2.9067012) (−2.2501419) (4.17784962)

R2 = 0.967996346

r/i = 0.01945557 F + 0.00712715 gRD + 0.06839329 phi − 0.0045108 + e

t Stat (2.53918279) (2.97197445) (5.19133944) (−0.7909303)

R2 = 0.70557708

F = −0.1038304 gRD − 1.4434483 phi + 15.4514141 r/i + 0.3269919 + e

t Stat (−1.2840981) (−2.9067012) (2.53918279) (2.32492172)

R2 = 0.37396662

gR/D = −3.6614545 phi + 51.9998545 r/i − 0.9538636 F − 0.36915039 + e

t Stat (−2.2501419) (2.97197445) (−1.2840981) (0.75648185)

R2 = 0.37223299

In θ =0.82858697 phi + 10.4235672 r/i + 1.18330249 F + 0.35321922gR/D

+ 1.14324027 + e

t Stat (5.86067062) (6.29108701) (20.1264505) (18.2094453)

R2 =0.99194735

Appendix: Empirical Estimates 65

Coefficient Table

Phi r/i F gR/D

Phi 9.39319434 – 0.2496185 – 0.0689235

r/i 0.06839329 0.01945557 0.00712715

F – 1.4434483 15.4514141 – 0.1038304

gR/D – 3.6614545 51.9998545 – 0.9538636

Raw Data

Time Phi r/i F gR/D

2013Q4 0.38 0.031 0.207 0.67

2014Q1 0.40 0.031 0.204 0.073

2014Q2 0.39 0.029 0.194 0.069

2013Q3 0.40 0.026 0.178 0.070

2014Q4 0.39 0.026 0.190 0.074

2015Q1 0.36 0.023 0.210 0.066

2015Q2 0.38 0.024 0.203 0.124

2015Q3 0.38 0.025 0.199 0.138

2015Q4 0.38 0.025 0.161 0.144

2016Q1 0.42 0.027 0.122 0.145

2016Q2 0.38 0.024 0.118 0.145

2016Q3 0.38 0.025 0.094 0.144

2016Q4 0.39 0.026 0.114 0.163

2017Q1 0.45 0.029 0.120 0.168

2017Q2 0.41 0.027 0.116 0.174

2017Q3 0.43 0.028 0.117 0.153

2017Q4 0.43 0.028 0.103 0.172

2018Q1 0.34 0.024 0.113 0.197

2018Q2 0.39 0.026 0.114 0.186

SUMMARY OUTPUT

Regression statistics

Multiple R 0.82459897

R Square 0.67996346

Adjusted R Square 0.61595615

Standard error 0.01558107

Observation 19

66 3 Profit-Sharing Versus Interest Rate in Islamic …

ANOVA

df SS MS F Significance F

Regression 3 0.00773698 0.00257899 10.6232159 0.00053408

Residual 15 0.00364154 0.00024277

Total 18 0.01137853

Appendix: Empirical Estimates 67

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

0.1937552

0.04637678

4.17734962

0.00030328

0.09490544

0.29260496

0.09490544

0.29260496

r/i

9.39319434

1.80939706

5.19133944

0.00010955

5.53655579

13.2498329

5.53655579

13.2498329

F−0

.2496185

0.08587692

−2.9067012

0.01084626

−0.4326609

−0.0665762

−0.4326609

−0.0665762

gR/D

−0.0689235

0.03063073

−2.2501419

0.03987713

−0.1342114

0.0036356

−0.1342114

−0.0036356

68 3 Profit-Sharing Versus Interest Rate in Islamic …

SUMMARY OUTPUT

Regression statistics

Multiple R 0.83998636

R Square 0.70557708

Adjusted R Square 0.64669249

Standard error 0.00132953

Observation 19

ANOVA

df SS MS F Significance F

Regression 3 6.3542E−05 2.1181E−05 11.9823733 0.00029017

Residual 15 2.6515E−05 1.7676E−06

Total 18 9.0056E−05

Appendix: Empirical Estimates 69

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

0.0045108

0.00570321

−0.7909303

0.44131175

−0.016667

0.00764527

−0.016667

0.00764527

F0.01945557

0.00766214

2.53918279

0.02267892

0.00312411

0.03578704

0.00312411

0.03578704

gR/D

0.00712715

0.00239812

2.97197445

0.00949938

0.00201568

0.01223862

0.00201568

0.01223862

phi

0.06839329

0.0131745

5.19133944

0.00010955

0.04031252

0.09647407

0.04031252

0.09647407

70 3 Profit-Sharing Versus Interest Rate in Islamic …

SUMMARY OUTPUT

Regression statistics

Multiple R 0.6115281

R Square 0.37396662

Adjusted R Square 0.24875994

Standard error 0.0374679

Observation 19

ANOVA

df SS MS F Significance F

Regression 3 0.01257898 0.00419299 2.98679457 0.06451225

Residual 15 0.02105765 0.00140384

Total 18 0.03363663

Appendix: Empirical Estimates 71

Coefficients

Standard

error

tStart

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

0.3269919

0.14064641

2.32492172

0.03451836

0.02721117

0.62677264

0.02721117

0.62677264

gR/D

−0.1038304

0.08085859

1.2840981

0.21858786

−−0.2761764

0.06851564

−0.2761764

0.06851564

phi

1.4434483

0.4965933

−2.9067012

0.01084626

−2.5019119

−0.3849848

−2.5019119

−0.3849848

r/i

15.4514141

6.08519173

2.53918279

0.02267892

2.48113496

28.4216932

2.48113496

28.4216932

72 3 Profit-Sharing Versus Interest Rate in Islamic …

SUMMARY OUTPUT

Regression statistics

Multiple R 0.610109

R Square 0.37223299

Adjusted R Square 0.24667959

Standard error 0.11356391

Observation 19

ANOVA

df SS MS F Significance F

Regression 3 0.11470657 0.03823552 2.96473844 0.06574963

Residual 15 0.19345142 0.01289676

Total 18 0.308158

Appendix: Empirical Estimates 73

Coefficients

Standard

error

tStat

P-value

Low

er95%

Upper

95%

Low

er95.0%

Upper

95.0%

Intercept

036915039

0.48798314

0.75643135

0.46107736

−0.6709611

1.40926134

−0.6709611

1.40926134

phi

−3.6614545

1.62721048

−2.2501419

0.03987713

−7.1297716

−0.1931375

−7.1297716

−0.1931375

r/i

51.9998545

17.4967367

2.97197445

0.00949938

14.706443

89.293266

14.706443

89.293266

F−0

.9538636

0.74282771

−1.2840981

0.21858786

−2.5371634

0.62943614

−2.5371634

0.62943614

74 3 Profit-Sharing Versus Interest Rate in Islamic …

References

Choudhury, M. A. (2019). The Tawhidi methodological worldview a transdisciplinary study ofIslamic economics. Springer-Nature.

Feynman,R. (1964).TheBrownianmovement. InTheFeynman lectures of physics (Vol. I, pp. 41–45,No. 1).

Fogel, D. B. (1995). Evolutionary computation. InToward a newphilosophy ofmachine intelligence.Piscataway, NJ: IEEE Press.

Nasr, S. H. (2006). The meaning and role of philosophy in Islam. In Islamic philosophy from itsorigin to present (p. 38). Albany, New York: State University of New York Press.

Roy, O. (2006). Globalized Islam, The search for a New Ummah. Columbia University Press, NewYork, NY.

Chapter 4Content Approach to Analytics of IslamicBanks by Meso-economicsof Inter-causality

Abstract The ontological worldview of Tawhid as the cardinal Law of unity ofknowledge centering in monotheistic organic participatory methodology of theQur’an is shown to have been evaded from the mind and actions of Islamic banksand their mentor, the Islamic Development Plan (IDB) and its think tank, IslamicResearch and Training Institute (IRTI). Thereby the theory and practice of Islamiceconomics and finance as theymust be in the true light of the qur’anicmethodologicalworldview has remained unknown and ungrounded in the entirety of Islamic erudi-tion in the socio-scientific meso-scale of learning. This chapter offers a critique,correction, and revived possibility to the much-needed reformation. Without suchessential reformulation of the field of so-called Islamic economics, finance, science,and society, sheer banking on shari’ah and fiqh as human concocted origin, distancesqur’anic erudition from the essentiality of Tawhid as the primal ontological law.

Objective

Ever since the advent of Islamic Finance as an exploratory field of mainstreamfinance, yet having no origin in the ontology of unity of knowledge, some glaringmistakes have been made in the so-called Islamic claim on avoidance of interest rate(riba). This principle of riba is indeed central to the study and functioning of Islamicfinance. Thereby, Islamic banks are required to abide by this central principle ofIslamicfinance and its application. This chapterwill investigate this critical viewpointin respect of the econometrics of the mind-set and activities of Islamic bank. Thisissue is exemplified by the Islamic Bank Bangladesh (IBBL) and its mentor in theIslamic membership, the Islamic Development Bank (IDB). The critical approachwill use content (qualitative) analysis to connect with the quantitative analysis ofeconometrics of inter-causality contrary to the kind of econometric work that ispursued in Islamic finance. The abstracto-empirical and the dysfunctional faults ofmainstream econometric use by Islamic finance are thus studied and alternativespresented.

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_4

75

76 4 Content Approach to Analytics of Islamic Banks …

Econometrics (Quantitative) of Content Analysis(Qualitative) of Islamic Banks

The content analysis of Islamic bank exemplified by the Islamic Bank Bangladesh(IBBL) and Islamic Development Bank (IDB), two widely apart Islamic institu-tions, one in a less developing country and the other in a capital surplus country ofSaudi Arabia, respectively, clearly establish our point of criticism. Indeed, IBBLwasconsidered to be a leading Islamic bank by the Finance Forum, and she boasts of herperformance.1 IDB as a desired mentor of development reconstruction of its Islamiccountries as members has failed in implementing a vision and mission to realizeresults in some of the critical areas of social development conjointly with economicdevelopment. In this chapter the problem of multidimensional poverty alleviation byimplementing Islamic instruments in member countries of IDB will be examined.

It is shown by data from the Annual Reports of IDB that an erroneous applica-tion of Islamic financing instruments and their sectoral use have failed to projectthe truly Islamic worldview of unity of knowledge by sectoral and instrumentalinter-causality. The IDB presence in Bangladesh with the government and IBBL hasfocused on mega-project financing without considering the inter-causality of devel-opment financing that ought to exist between economic growth and the ethics ofdevelopment. IDB has thus failed in her member countries by being oblivious of thetruly ontological origin of Islamic thought in ‘everything’, Tawhid. Tawhid as thecardinal Islamic law of oneness of Allah is explained and expressed in the Qur’anas the law of unity of knowledge explained by organic inter-causality of comple-mentary pairing between the recommended choices of TRUTH and avoidance of theinadmissible choices of Falsehood in the midst of a learning worldview of unity ofknowledge working out in the problem-domains (Qur’an 36:36; 14:24).2

IDB through its Islamic Research and Training Institute (IRTI) and its variouscategories of followers failed to articulate any viable theory of Islamic economicsand finance. Consequently, a sound theory of avoidance of interest rate from theontological (Tawhid in Qur’an and Prophetic traditions, sunnah) could not be derivedand formalized to its working in economic, financial, and ethical fields. IDB alongwith its various votaries became subsumed in what is referred to as shari’ah (Islamiclaw as jurisprudence, not ontological in its origin in Tawhid as law). One of the grandfailures in understanding riba for its extensive avoidance is the complete absence ofan intertemporal theory and meaning of riba; and the opposite relationship with trade

1Islamic Bank Bangladesh Limited (2017).2Qur’an (36:36). Exalted is He who created all pairs—from what the earth grows and fromthemselves and from that which they do not know.

Qur’an (14:24): “Seest thou not how Allah sets forth a parable?—A goodly word like a goodlytree, whose root is firmly fixed, and its branches (reach) to the heavens,- of its Lord. So Allah setsforth parables for men, in order that they may receive admonition.”

Qur’an (14:26). “And the parable of an evil Word is that of an evil tree: It is torn up by the rootfrom the surface of the earth: it has no stability.”

Econometrics (Quantitative) of Content … 77

(Qur’an, 2:275).3 The meaning of trade is taken in its vastest meaning of exchangein goods, kinds, and contracts over space and time.

Besides, to test the inverse relationship between trade and interest rate, macroe-conomic approach does not answer the qur’anic riba law. That is because the existingaggregate study done bymacroeconomics does not answer themicroeconomic natureof ethical bearing in every relationship that endears evolutionary knowledge and ethi-cality/morality to address themicro-foundation of aggregate theory.We have pointedout in Chap. 1 that macroeconomics in its existing aggregate analysis of variableswith ethical exogeneity does not fit into answering the endogenous circular causa-tion relations between variables and the explicit endogenous nature of evolutionarylearning and inter-variable causality. Consequently, there is no correct analyticalrelevance for macroeconomics and thereby presently holding methodology resultingin methods of econometrics.4

The way out of this incorrect Islamic representation by so-called Islamiceconomics and finance and its misguided pursuit by Islamic researchers and theirfunding institutions is to resort to the unique and universal criterion of wellbeingfunction. It is the wellbeing function as the objective criterion of unity of knowledgeby organic pairing between the endogenous variables in the presence of evolutionarylearning that enables the ontological methodology, this being contrary to the ratio-nality foundation of macroeconomics and econometrics, and its quantitative applica-tion bymeans of the circular causation system of relations generated by thewellbeingfunction. This includes the evaluation of the knowledge parameter in respect of theentire list of endogenous variables to statistically test their degrees of complemen-tarities and the inter-correlations between them. The data used in such a case arederived from questionnaire survey or longitudinal statistical analysis.5 In either ofthese cases multivariates by segmenting groups at regional, cohort, and householdlevels on trade and interest rates of different kinds can reveal the responses of thesecategories on the interrelationships between the multivariates.

Such responses will generate the parametric knowledge-based reactions in thecircular causation relations between the endogenous variables. Thereby, the well-being parameter representing degrees of organic relations on pairing by complemen-tarities (positive coefficients and their statistical analysis) and inter-correlations canbe evaluated. Furthermore, the evaluation of wellbeing model with circular causa-tion relations between the endogenous multivariates by all conformable methodsresult in time-series or cross-sectional study,6 can be subjected to simulation of the

3Qur’an (2:275). Those who consume interest cannot stand [on the Day of Resurrection] exceptas one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just]like interest.” But Allah has permitted trade and has forbidden interest. So whoever has receivedan admonition from his Lord and desists may have what is past, and his affair rests with Allah. Butwhoever returns to [dealing in interest or usury]—those are the companions of the Fire; they willabide eternally therein.4Choudhury (2006).5Newsom, Jones, and Hofer (2011).6My students apply VAR and VECMmethods, Structural EquationsModel (SEM), SDA and Likertanalysis.

78 4 Content Approach to Analytics of Islamic Banks …

coefficients by Spatial Domain Analysis (SDA) to generate random choices of coeffi-cients as desired for generating various kinds of results and for policy analysis underdifferent scenarios of implications.

Multivariate Wellbeing Model of Trade and Interest Rates

Macroeconomics and econometrics are unable to estimate, formulate, study, andprovide inferences regarding ethical sensitivity by interactions between the variables.These methods do not provide the estimated/simulated values of degrees of unity ofknowledge between the variables as conveyed by the simulated coefficients by saySDA. Replacement of such macroeconomic econometric approaches by microeco-nomic ones results in the following model of trade and riba in a multivariate sense.An approach of this type has not been thought of by so-called Islamic economists andfinance experts. Their mentor organizations have failed to inculcate the underlyingmethodological worldview of unity of knowledge to affect the wellbeing criterion ofobjectivity.

Contrary to having accomplished such creative contributions that are trulyconformable with the Islamic ontological foundation of the law of Tawhid, the so-called Islamic economists and their leadingmentor, IDB-IRTI and their sister organi-zations alongwith the jurisprudential council of Organization of IslamicConferences(OIC FiqhCouncil) have immersed themselves in themisleading jurisprudential garbof shari’ah. Consequently, the Islamic permanence of relationship between trade andriba has remained untested and thwarted in Islamic thought regarding the qur’aniclaw. It is absolutely possible that over time there can be positive relationship betweentrade and riba. This macroeconomic econometric result contradicts the qur’anic lawon trade and riba.

Following is the multivariate trade versus riba model of wellbeing. It representsthe explanatory measure of unity of knowledge reflecting the organic pairing ofcomplementary relationship between the choices by the law of Tawhid (trade) in theTRUTH domain; avoiding riba in the FALSE domain.

Let the vector of knowledge-induced (‘θ’) variables be denoted by,

x(θ) = {T1,T2, . . . ,Tn, i1, i2, . . . , in, r1, r2, . . . , rn, y1, y2, . . . yn

}[θ], (4.1)

where, Ts are various kinds of trade in permissible areas of TRUTH domain. Let ‘T’denote the vector of Ts.

is are various interest rates in activities to Ts. Let ‘i’ denote the vector of is.

rs are various rates of returns in various Ts. Let ‘r’ denote the vector of rs.

ys are various earnings corresponding to Ts. Let ‘y’ denote the vector of ys.

s = 1, 2, …, n. time ‘t’ or cross-sectional and survey data are implicit in the sense ofvarious methods of microeconomic evaluations, i.e. SEM, longitudinal etc.

Multivariate Wellbeing Model of Trade and Interest Rates 79

The wellbeing function induced by knowledge parameter ‘θ’ in its theoreticalform is,

W(θ) = W(θ, x(θ)) (4.2)

W(θ) is evaluated (i.e. estimated and simulated) subject to the inter-variable circularcausation relations,

Tk = fk(T′, i, r, y, θ

)[θ]. T′ is the vector of explanatory trade variables without Tk; k = 1, 2, . . . , n(4.3)

lk = gk(T, I′, r, y, θ

)[θ]. i′ is the vector of explanatory interest rate variables without ik; k = 1, 2, . . . , n(4.4)

r′k = hk(T,I, r′, y, θ

)[θ]. r′ is the vector of explanatory rate of return variables without rk; k = 1, 2, . . . n(4.5)

y′k = Jk(T, I, r, y′, θ

)[θ]. y′ is the vector of explanatory earning variables without yk; k = 1, 2, . . . n(4.6)

θ = W(T, i, r, y)[θ] as a simplified quantitative form of the theoretical

wellbeing function.

k = 1, 2, . . . , n. (4.7)

The functions are all taken in the log-linear forms for the coefficients to be easily inter-pretable as partial inter-variable elasticity coefficients. The estimated coefficients arenext simulated by appropriate methods to yield θ-induced coefficients in the light ofdesired changes for policy implications and reconstruction of statistical results in thelight of better degrees of complementarities, positive (intra-TRUTH domain vari-ables; intra-FALSE domain variables) and negative (FALSE with TRUTH domainvariables). Several model reformulations can be done by changing the forms of thevariables. Examples are {r/i} by collapsing i and r into one set of variables. Like-wise there can be {T/y} collapsing T and y into one set of variables. All variablesare ‘θ’-induced. Consequently, different statistical results for the coefficients wouldbe expected. Thereby, different policy analysis and conclusions of results would bederived.

The nature of econometrics of wellbeing function with circular causation betweenthe complete set of endogenous variables chosen in reference to the TRUTH-domainand FALSE-domain by the Tawhidi law of unity of knowledge as the true Islamiclaw is contrary to the juristic nature of shari’ah. The latter approach is presentlypromoted by the failed mainstream abidance of macroeconomics and econometricsof so-called Islamic economics and finance. The contrast between the mainstreammacroeconomic and econometric approaches in Islamic economics and finance, andthe econometrics of circular causation in wellbeing analysis with its microeconomic

80 4 Content Approach to Analytics of Islamic Banks …

orientation and infallible reference to the primal ontology of Tawhidi unity of knowl-edge is centrally due to the complete induction of ontological methodology andemergent quantitative methods by ‘θ’-parameter.

The mainstream approach though is the failed adoption by the mentoring insti-tutions and their votaries in the name of shari’ah jurisprudence dispensing withTawhid as law and all that this invokes in every problem-domains of study. Tawhidmeaning oneness of Allah that translates into the law of organic unity of knowl-edge and analytically explains ‘everything’ in various problem-domains is contraryin meaning and application to shari’ah as jurisprudence. Shari’ah does not explain‘everything’ between the heavens and earth and is a human-concocted sectariandevelopment in Muslim belief. Shari’ah has never ushered a methodology of divineoneness in the context of unity of knowledge and thereby does not have any onto-logical methodology that arises from and emulates the cardinal law of Tawhid in theQur’an. In this regard the Qur’an (24:35) declares of Allah as the Law-Giver andthereby the completeness of the law of unity of knowledge, “Allah is the Light ofthe heavens and the earth. The example of His light is like a niche within which isa lamp, the lamp is within glass, the glass as if it were a pearly [white] star lit from[the oil of] a blessed olive tree, neither of the east nor of the west, whose oil wouldalmost glow even if untouched by fire. Light upon light. Allah guides to His lightwhom He wills. And Allah presents examples for the people, and Allah is knowingof all things.”

Even in another verse of the Qur’an (45:18)7, while shari’ah is mentioned as theway to Tawhid, this must imply that way to be derived from and reinforcing the law ofTawhid. It is the very law uniquely that was revealed to the Prophet Muhammad forthe universal order of ‘everything’. We have explained this case in Chap. 1, as whatgerminates from theprimal ontologyofTawhid, formalizes into theway tounderstandthe translucence of Tawhid as the universal law ofmonotheistic oneness, and finalizesin this evolutionary confirmation. Shari’ah as the Way of articulation of Tawhid isitself of Tawhidi genre. On this matter Abdullah Yusuf Ali comments on the qur’anicverse (45:18): Yusuf Ali footnote 4756: “Shari’ah is best translated as the “right Wayof Religion”, which is wider than the mere formal rites and legal provisions, whichmostly came in theMadinahperiod, long after thisMakkanverse hadbeen revealed.”8

Ibn Kathir9 further writes his commentary of the verse (Qur’an 45:18) as:“Then Wehave put you (O Muhammad) on a plain way of (Our) commandment [like the onewhich We commanded Our Messengers before you (i.e. legal ways and laws of theIslamic Monotheism). So follow you that (Islamic Monotheism and its laws), andfollow not the desires of those who know not.”

7Then We put you, [O Muhammad], on an ordained way concerning the matter [of religion]; sofollow it and do not follow the inclinations of those who do not know.8Ali (1946).9Taqi-ud-Din Al-Hilali and Muhsin Khan (1998).

The Theoretical Implication of Tawhid as Monotheistic Oneness … 81

The Theoretical Implication of Tawhid as MonotheisticOneness in the Econometrics of Circular Causationand Wellbeing

In mathematical language this completeness of evolutionary knowledge establishestheFixedPointTheoremuponwhich the evolutionary learning equilibriumsofmicro-foundation of macroeconomics and econometrics rest. That is, in reference to theexplanation by the Figures of Chap. 1 we note the following result,

Origin in the Primal Ontology of Monotheism, (Ω , S)→Derivation of theMonotheistic Unity of Knowledge, {θ}, Epistemology→ Evolutionary LearningWorld-System, {x(θ )}, as formal ontology} → Continuity by reference to PrimalOntology and Evolutionary Epistemology of Monotheistic Oneness by Organic Unityof Knowledge and the World-System → Completion in the Primal Ontology, (Ω , S).

It is surmised that evolutionary fixed points yielding multiple equilibriums inspaces of complexity and evolutionary learning but with integrative property ofconvergence in an evolutionary form (call this evolutionary convergences) willentail non-compact topologies. Thus for example, by the combination of Keynesianmultiple full-employment points of equilibrium with Schumpeterian evolutionaryequilibrium10 will cause all Keynesian general equilibrium analysis to be trans-formed into fields of complex non-linearity.11 Thereby, the above derivation willapply in the case of micro-foundation of macroeconomics and its econometrics ofinter-causality in wellbeing objective criterion. This is argued here to constitute thetrue representation of work in the Tawhidi field of Islamic economics and finance.It though remains unknown to Islamic mentoring institutions as IDB and IRTI andtheir shari’ah-oriented votaries.

Stiglitz12 has pointed out someof the flawswith the theory ofmacroeconomics andthereby econometrics. The flaws are noted to be the absence of the microeconomictheory of markets, firm, and household behaviour in economic decision-making.Although Stiglitz points out the perturbations in economic decision-making causedby lack of information theory in macroeconomic theory, he still continues to basehis study in perfect competition. Yet certain inclinations of household and produc-tion theory, such as the Islamic premise of avoidance of financial interest in marketexchange and the religious duties of TRUTH-domain against hedonic self-interestare traits of preference formation and production menus of firms in Islamic socio-ethical traits. Such values can be included in the information domain that Stiglitzrecommends for explicit inclusion in a reformulation of macroeconomic theory andeconometrics.

We have recommended similar orientation to econometric revision in the lightof reading out the ethical/moral sensitivity in the econometrics of micro-foundationof macroeconomics of inter-causality in the wellbeing function. This would make

10Gaffard (2009).11Border (1989).12Stiglitz (2018).

82 4 Content Approach to Analytics of Islamic Banks …

the methodical approach ontologically relevant and thus truly representative of theIslamic worldview of Tawhid as law in the econometric modeling of behaviour.Without such micro-foundational revision of macroeconomics and econometrics, ablind pursuit of mainstream macroeconomics, as presently done, would lead intoethical insensitivity, notwithstanding an exogenous outer sounding of ethical/moralclaim, as by the shari’ah approach in so-called Islamic mentoring institutions andamong their followers.

Consequences of Misspecification of Objective Criterionin Islamic Institutional Policies for the Ummah (MuslimComity of Nations)

Content study of Islamic Development Bank Annual Report 2018 shows that there isan obvious mismatch between the bold statements made and the data presented. Themacroeconomic critique giving to policy prescriptions are found to exist in respectof the variation in financing by various so-called Islamic development instruments.We also note that such financing variations mismatch with the development goal ofsustainability. Most important of these goals is that of wellbeing objective criterion.This goal is found to have been missed out in preference for economic growth.Consequently, several of the critical elements of wellbeing are mentioned but proveto be ineffective according to the data analysis. Among the critical elements of thewellbeing criterion is poverty alleviation by entrepreneurship and empowerment.These are inferred to be unreachable in the face of IDB’s financing made out tomember governments, who are today suffering of gross inefficiencies, administrativedishonesty, social injustice, and deep political conflicts.

By the pursuit of mistakenmacroeconomic goals in the name of Islamic economicdevelopment instruments the very announcement by IDB of a new paradigm shift13

under its presidential directives are inferred to have taken mistaken turn. Thisparadigm shift is of attaining Sustainable Development Goals. Yet in the face offocusing on growth with limited resources of her membership, IDB had to maketrade-offs between growth and wellbeing, thus foregoing the much required Islamicworldview of sustaining complementarities between such goals and among their roleplayers. A reason for this failure in sustainability is IDB’s dependence on a heavilyinstitutional financial perspective contrary to havingknowledge of endogenous devel-opment.14 This approach is powered by the endogenous force of human resources

13The President of IDB announced his focus on paradigm shift to be the attainment of SDG bymember countries. This goal is presently an impossible task forMuslim countries unless the internalpolitical, economic, and the ethics of peace and collective self-reliance are not first established. TheIDB and Organization of Islamic Conferences (OIC) have proved dysfunctional in adducing theSDG goals in their membership. On the theme of political economy of peace and consilience seeChoudhury and Taifur (forthcoming).14Romer (1986).

Consequences of Misspecification of Objective Criterion … 83

and socio-economic linkages with market transformation contrary to the overpow-ering government deepening and enforcement of economic change according to theircontrary mindset. Indeed, the stiffening presence of government institutions by theirpolicy instruments governing the marketplace has for ever been the way of exoge-nous interference in Islamic economic history. The top-down ruling of shari’ah bygovernment agencies has been a cause of the prevalence of institutional governancein the Muslim world. An example of this interference in the market process was themacroeconomic idea of Ibn Taimiyyah regarding his theory of hisbah, social controlof market process.15Besides, the role of endogenous ethics is sustained by extensiveparticipation, market complementarities, and use of micro-foundation of macroeco-nomics in the face of wellbeing objective of unity of knowledge. Such a perspectiveof development sustainability and transformation is formalized in this work.

At the intellectual level, a serious reason for the failure of IDB’s macroeconomicoutlook of SDG for implementation in her membership is the failure of her IslamicResearch and Training Institute to indoctrinate hermembership development outlookand the inclination of her researchers towards mainstream economic thought. TrueIslamic perspectives in economic, finance, social, science, and technology constructsnever came out of IDB and her IRTI. The pursuit of SDG thus remains succumbedto outmoded thoughts and models of development. The ensuing failure has beenone of both sides—on the intellectual level, and on the correct policy level in themembership. IDB’s paradigm shift announced in IDB Annual Report 2018 is thusflawed. According to the objective of wellbeing in unity of knowledge it is subjectto failure.

Empirical Inference of IDB’s Macroeconomic Failureof Islamic Paradigm Shift of SDG

We now explain our inferences given above on the dysfunctional nature of macroeco-nomics and its problematic econometric outlook in Islamic context by the followingdata analysis in the context of sustainability cast by thewellbeing objective approach.

The instruments used by the IDB are extracted from IDB (May 2016). 42 Yearsin the Service of Development) loan, leasing, instalment sale, technical assistance,equity participation, profit sharing, Istisna’a, Murabaha, and lines of financingextended to NDFIs.

A brief explanation of each is given below:

• Loan: This mode of financing is used for projects expected to have a significantsocio-economic impact, with a long implementation period, and which may notbe revenue generating. Loans are given to governments or public institutionsmainly in Least Developed Member Countries (LDMCs) for the implementationof infrastructure and industrial projects.

15Holland (1982).

84 4 Content Approach to Analytics of Islamic Banks …

• Leasing (Ijara): This is a medium termmode of financing for the rental of capitalequipment and other fixed assets such as plant, machinery, and equipment forindustrial, agro-industrial, infrastructure, transport, etc., both for the public andprivate sectors. Lease financing is also provided for acquiring ships, oil tankers,fishing trawlers, etc. After the end of the rental period the Bank transfers theownership of equipment to the lessee as a gift.

• Instalment Sale: Instalment Sale is similar to Leasing. The major difference isthat in Instalment Sale the ownership of the asset is transferred to the beneficiaryon delivery. Under this mode of financing the Bank purchases equipment andmachinery, and sells it to the beneficiary at a higher price.

• Equity Participation: Under this mode of financing, the Bank participates in theequity capital of existing or new companies in the public and private sectors. TheBank’s participation is limited to one-third of the equity capital of the company.

• Profit Sharing: This is a form of partnership in which two or more parties poolfunds to finance a venture. The partners share the profit (or loss) in proportion totheir contribution to the capital.

• Line of Financing to NDFIs: Under this category the Bank extends financingthrough equity, leasing, and instalment sale to the NDFIs in member countries topromote the growth of small and medium scale industries, mainly in the privatesector.

• Istisna’a: Istisna’a is a mode for trade and project financing for the promotionof trade in capital goods and the enhancement of productive capacity. It is acontract for manufacturing goods or other assets in which themanufacturer agreesto provide the buyer with goods identified by description after they have beenmanufactured in conformity with this description within a certain time and for anagreed price. This new mode will enable the Bank to finance working capital andthus contribute to the enhancement of productive capacity in member countries.

• Murabaha: This mode of financing is used in the financing of foreign trade, bothimports and exports. The Bank purchases the commodity requested and re-sellsit to the beneficiary. In the case of import financing, the period of financing is upto 30 months, while, in case of export financing, it may extend up to 120 months.

The financing patterns are seen to be concentrated in the instruments of murabaha,istisna’a, and deferred payments of loans, leasing (ijara). On the other hand, theprincipal instruments that stand on truly Islamic participatory financing instrumentsare mudarabah and musharakah. All other financing are supposed to revolve aroundthese principal participatory instruments. Yet in terms of financing for a long periodof time it is found that IDB financing in these areas have dried up. There is dyingactivity of participatory funds revolving around the principal ones. Consequently,diversification of Islamic investment mode of financing is not evident.

Furthermore, as discussed earlier, the failure of IDB and its research organization,IRTI, has been on her incorrect directions of Islamic thought and creative participa-tory worldview. This truly Islamic approach rests otherwise on the unfailing founda-tion of Tawhidi unity of knowledge and on the pervasively participatory worldview.Thereby, the intertemporal riba problem has failed to be answered in IDB financing.

Empirical Inference of IDB’s Macroeconomic Failure … 85

For instance, so-called Islamic economics and finance has failed to offer the kindof intergenerational asset valuation16 for determining the premiums and rates inintertemporal leasing, murabaha, rents, loans, istisna’a, and recently in the Islamicinsurance industry called takaful. It is therefore questionable practice to set rates inany of these intertemporal asset holdings by IDB and its financial prototypes.

The absence of a sound method of evaluation of rates in Islamic economics andfinance results in emptiness of an intertemporal conception of riba. This in turnresults in deepening of risk and absence of asset and economic diversification inter-sectorally and inter-regionally. Consequently, the desired goal of SDG is thwarted inthe existing so-called Islamic approaches of IDB-IRTI and her sister organizations,and in ‘Islamic’ economic thought.

This claim of failure of mainstream approaches in ‘Islamic’ economics andfinance, not having any epistemological premise, can be proved in the following way.IDB financing tables given above shows a deepening neoclassical type marginal rateof substitution of concentrated projects like murabaha, leasing, loans, and istisna’afor other worthwhile outlets like mudarabah and musharakah. The Tawhidi prin-ciple of complementarities between participatory financing instruments followed bytheir implications on projects, sectors, regions, and intertemporally viewed is fullynegated. Shari’ah without the primal Tawhidi worldview of unity of knowledge isunacceptable in true Islamic epistemological thought.

The precept of undertaking risky projects under conditions of decreasing unitrisk in the face of project diversification by increased output and shareholding hasremained unknownand subdued. Islamic economics andfinance have unquestionablyaccepted the risk-return theory of mainstream economics. Contrarily, the unit-risk

16Choudhury, Hossain, and Mohammad (2019).The formulation of the intertemporal overlapping generation model for rate-determination can

now be written as,A0[(1+ r)(1+ g)]t +A1[(1+ r)(1+ g)]t−1 + · · · +At−1[(1+ r)(1+ g)] +At = ∑

t (lt + dt),Here, A’s denote time-dependent (t) asset values accumulated by ‘r’, rate of return, and ‘g’ real

rate of growth of material values. ‘It’ denotes time-specific investments. ‘dt’ denotes time-specificdepreciations. All variables are ‘θ’-induced.

The above formulation is a microeconomic approach to asset valuation. It can be computerisedat IRTI if IDB were to open up its thoughts and application to the authentic Islamic analyticaldirection.

It is plausible assumption in the above formulation that during the finite life span an asset willexperience its evolutionary convergence with the growth of knowledge embedded in the moral andmaterial worth. The wellbeing generated by this embedding is immensely great in infinite time asthe Qur’an (2:26) declares: “The parable of those who spend their substance in the way of Allah isthat of a grain of corn: it grows seven ears and each ear Has a hundred grains. Allah gives manifoldincrease to whom He pleases: and Allah cares for all and He knows all things.” By approximationonly, we can solve yet under the case of evolutionary convergence for the polynomial roots of aboveequation near the point of vanishing of net accumulative terminal value. Such nearness betweenevents in knowledge, space, and time dimensions is referred to as the ‘nearest point of valuation’event by quantitative evaluation (estimation and simulation). The values of ‘r’ as the rate of return,and ‘g’ as real growth of material returns, and thereby (r + g), are solved in the above-mentionedpolynomial.

86 4 Content Approach to Analytics of Islamic Banks …

and diversification approach argues in respect of the ontological precept of unity ofknowledge in expending field of risky undertaking as follows:

Let σ2(x(θ), θ, t) denote risk on the choice vector, x(θ) induced by ‘θ’-parameter.{x(θ)} includes the vector of outputs {q(x(θ), θ, t)} and the number of shareholderscorresponding to outputs by projects and sectors is denoted by {sh(x(θ), θ, t)}. Jointproduction menus are of the essence in the light of inter-variable complementaritiesby unity of knowledge.17 The time variable ‘t’ implies sustainability of wellbeingdenoted by its transformation by ‘θ’ or its complex non-linear form.

Define unit risk (U) by diversification (D) across

{q(x(θ), θ, t), sh(x(θ), θ, t)} by,UD

(σ2(x(θ), θ, t)

) = [σ2(x(θ), θ, t)/q(x(θ), θ, t)

]∗(1/sh(x(θ), θ, t))

](4.8)

Each shareholder (stakeholder) is encouraged to participate by observing unit riskof output under the condition of knowledge and information. This is a behaviouralassumption.

Hence, as[σ2(x(θ), θ, t)/q(x(θ), θ, t)

] ↓ even if σ2(x(θ), θ, t) ↑, this impliesUD

(σ2(x(θ), θ, t)

) ↓↓ as sh(x(θ), θ, t)) ↑ with q(x(θ), θ, t) ↑ irrespective ofσ2(x(θ), θ, t) ↑. Unit risk and not risk as such governs the diversification process.Underlying this output-risk diversification result is the critical role of unity of knowl-edge by complementarities and participation between projects, sectors, and stake-holders. The wellbeing function, W(y(θ), θ, t) in the variables of the completevector,

y(θ, t) = {x(θ), θ, t), q(x(θ), θ, t), sh(x(θ), θ, t), UD(σ2(x(θ), θ, t)), θ, t)} is nowevaluated by taking recourse to the circular causation relations between the variables.The complete econometric model then results regarding the evaluation of wellbeingsubject to the circular causation relations:

Evaluate W(y(θ, t)) (4.9)

Subject to the circular causation relations:

x(θ) = f1(q(θ)), sh(θ),UD(θ), θ, t) (4.10)

q(θ) = f2(x(θ), sh(θ),UD(θ), θ, t) (4.11)

sh(θ) = f3(x(θ), q(θ),UD(θ), θ, t) (4.12)

UD(θ) = f4(x(θ), q(θ), sh(θ), θ, t) (4.13)

17Choudhury and Hoque (2004).

Empirical Inference of IDB’s Macroeconomic Failure … 87

θ = W(y(θ, t)) (4.14)

The evaluation (estimation, simulation) of the above system is done in the recursivesense of the variables by noting that the numbered (i, j)-variables are related byinter-causality by having yi relate to yj, such that i �= j = 1, 2, . . . , n. For the sakeof ready statistical analysis the functions f’s are taken in the log-linear form. The (n+ 1) × (n + 1) number of equations are non-linear because of the coefficients beinginduced continuously by ‘θ’-parameter in evaluation. The method of generating the‘θ’-values corresponding to the variables over time ‘t’ was explained and performedin earlier chapters.

IDBTables 4.1 and4.2 showbycontent analysis that socially inclusivefinancing asfor APIF, mudarabah and musharakah remain suppressed in waqf as Islamic endow-ment andmicroenterprise and SMEs. On the other hand, shareholding financing suchas, loans, leasing, murabaha are low across the IDB membership. Such a result ofcontent analysis proves that IDB-IRTI is steeped in imitating neoclassical substitutionpostulate of growth against equity. The essential property of extensive inter-financingcomplementarities, which should prove effective project-wise, inter-sectoral andinter-regional financing, has been forgotten. Thereby, although SDG is desired asa paradigm for pursuit by IDB, it remains distanced by IDB-IRTI’s emptiness ofthe true Islamic ontological premise of methodology and the imminent methods ofevaluation that ought to be used in continuity across knowledge-induction in spaceand time.

The wellbeing function is estimated subject to the circular causation equations intheir log-linear forms as follows:

lnM = Const + A1 ln L + A2 ln A + A3 ln θ (4.15)

ln L = Const + A1 lnM + A2 ln A + A3 ln θ (4.16)

ln A = Const + A1 lnM + A2 ln L + A3 ln θ (4.17)

ln θ = Const + A1 lnM + A2 ln L + A3 ln A (4.18)

as the log-linearized form of the theoretical form of the wellbeing function, W(M,L, A, θ)[θ].

The estimated statistical results are given in the statistical conclusion. The greatlymissing point of the primal ontology of Tawhidi unity of knowledge and its trans-lation in terms of symbiotic oneness by inter-causality between all entities is theinherent nature of shari’ah. Indeed, Ashur18 muses that everything of shari’ah is areflection of the Qur’anic high ground of universality of knowledge. Yet he never

18Ashur (2013).

88 4 Content Approach to Analytics of Islamic Banks …

Table 4.1 Approvals by entities and modes of financing ($ million)

1432H 1433H 1434H 1435H 1436H

2011 2012 2013 2014 2015

A. IDB OCR

Loan 383.2 375.9 396.5 346.8 330.9

Equity 68.1 313.7 76.0 90.0 97.3 1

Leasing 982.7 621.2 783.2 1,770.0 610.3

Instalment sale 220.7 927.1 182.0 416.1 357.4

Combined lines of financing 75.0 0.0 0.0 50.0 0.0

Profit sharing/Musharaka 100.0 50.0 0.0 0.0 0.0

Istisna’a 2,078.1 2,007.1 2,388.8 2,415.5 2,902.9

Mudaraba 0.0 0.0 440.0 0.0 600.0

Technical assistance 39.1 21.0 18.3 27.9 10.7

Sub-total 3,946.7 4,316.0 4,284.8 5,116.4 4,909.5

B. ICD

Equity 121.9 139.9 199.8 72.4 161.2

Leasing 0.0 80.0 10.0 43.2 73.0

Instalment sale 0.0 0.0 0.0 0.0 0.0

Istisna’a 5.0 0.0 0.0 20.0 0.0

Murabaha 135.0 91.1 224.0 177.9 432.7

Sub-total 261.9 311.0 433.8 313.4 666.9

C. ITFC

Murabaha 2,788.4 4,286.4 4,901.0 5,136.4 6,396.8

D. Others 34.5 36.1 99.7 65.5 27.8

APIF 33.5 42.8 83.7 63.8 89.1

Special Assistance 15.1 8.1 7.2 6.9 5.8

Pre-ITFC trade 0.0 0.0 0.0 0.0 0.0

Sub-Total 83.1 86.9 190.6 136.2 122.7

Grand Total 7,080.1 9,000.2 9,810.2 10,702.4 12,095.9

2016 2017 2018

A. IDB OCR

Loan 935.6 708.5 45.4

Equity 15.6 0.6 0.0

Leasing 0.0 13.6 0.0

Instalment sale 617.6 1131.8 598.8

Combined lines of financing 0.0 0.0 0.0

Profit sharing/Musharaka 0.0 0.0 0.0

Istisna’a 2029.6 415.8 119.8

(continued)

Empirical Inference of IDB’s Macroeconomic Failure … 89

Table 4.1 (continued)

2016 2017 2018

Mudaraba 0.0 0.0 0.0

Technical assistance 0.2 0.0 0.0

Sub-total 3598.6 2270.2 764.1

B. ICD

Equity 133.9 8.5 6.6

Leasing 41.4 76.2 32.4

Instalment sale 0.0 0.0 0.0

Istisna’a 18.4 20.6 0.0

Murabaha 352.4 530.8 308.5

Sub-total 546.2 636.1 347.4

C. ITFC

Murabaha 3744.8 4792.7 5190.9

D. Others 34.5 36.1 99.7

Waqf 8.6 5.0 14.6

APIF 29.4 27.5 32.2

Source Islamic Development Bank (May 2016). 42 Years in the Service of DevelopmentSource IDB Annual Report 2018AbbreviationsAPIF Awqaf Properties Investment FundICD Islamic Corporation for the Development of the Private SectorID Islamic Dinar (equivalent to one Special Drawing Right of IMF)ITFC International Islamic Trade Finance CorporationOCR Ordinary Capital Resources of IDB

Table 4.2 Computing variable specific parameterised weights

MurabahaTotal

Leasing + Loan +Istisna’a

APIF(Waqf)

M θ1 L θ2 A θ3 θ = Avg.(θ1, θ2, θ3)

2011 2923.4 4.28 6387.4 5.98 33.5 3.76 4.67

2012 4377.5 6.40 7290.6 6.56 42.8 4.80 5.92

2013 5125.0 7.69 8469.5 7.62 83.7 9.39 8.23

2014 5314.3 7.97 9846.6 8.86 63.8 7.16 8.00

2015 6829.5 10 10673.6 10 89.1 10 10

2016 4097.2 6.15 6710.0 6.04 29.4 3.30 5.16

2017 5323.5 7.99 6461.4 5.81 27.5 3.08 5.62

2018 5499.4 8.25 5664.6 5.10 32.2 3.61 5.65

90 4 Content Approach to Analytics of Islamic Banks …

for once mentions as to what this unique, consistent, and unassailable knowledge ofthe high ground is, that is regarding Tawhid and its concrescence of the originalityand particulars of the world-system. Ashur’s work is a polemical roaming around themajesty of shari’ah without a critical study. This work therefore fails to be a scientificand realistic study of the theme of shari’ah (i.e. maqasid as-shari’ah).

The book also points out that, shari’ah is concerned only with matters actual,seen, and experienced; and that shar’ah avoids all matters of imagination. In doingso, Ashur and likewise his earlier reference like Imam Malik in Muwatta, dispel theimportant place of ontological questions of the a priori nature that bear on a posteriorimatters by way of circular causation. Yet these questions have deep consequencesin meta-scientific knowledge of inquiry of reality. They transcend the cosmic scaleof interdependency between entities, thus explaining universality of participativepairing in ‘everything’ between the heavens and the earth.

Shari’ah is thus narroweddown tohumanconcocted19 ideals addressing a stultifiedunderstandingof reality. Even in the intertemporal sense ofmarket valuation of assets,shari’ah forbids calculating future uncertainties of probabilistic nature, which thoughare realities. These eventualities are indeed real factors of SDG. Shari’ah fails toassess them in its narrowperspective of observations and thought by absenting the roleof imagination.20 None of such constriction is found at all in the worldview of unityof knowledge between entities of the participative ‘everything’ according to Tawhidas THE LAW contrary to shari’ah as usul al-fiqh (jurisprudence and legislation).21

The failure of IDB-IRTI in such methodological fields and the imminent method-ical approaches of valuation of assets andmodes of financinghave spread like destruc-tive cancer across all mistaken ‘Islamic’ directions. The inferences of neoclassicaltype trade-off (substitution) between various project related, regional, sectoral, andinstrumental areas by modes of financing has widening adverse consequences inthe sector of Science, Technology, and Innovation (STI).22 The result of such apartitioned worldview of STI for IDB’s membership has been the backwardness ofMuslim countries by their human resource remaining disjoint from the nature ofmodern technology. Contrarily, the dynamic life-fulfillment outlook of developmentcaused by θ-induction over time and which could be meaningfully participative ofthe human resources and natural resources has never appeared in IDB-IRTI mindset.This happened despite the desire to attain SDG. A principal cause of its inappropriate

19Shari’ah and maqasid as-shari’ah as the purpose and objective of shari’ah arose as vastly writtenedicts by various Muslim scholars starting from Al-Juwainy, Imam Ghazali, Ibn Taimiyyah, ImamShafei and others. This edicts did not wholly agree between them.20Inglott (1990).21Choudhury (2019).22The Tawhidi approach of unity of knowledge by inter-causality of complementary entities and theshari’ah utilitarian approach are contrary to each other (e.g. STI): Tawhid as Law of Unity estab-lishes complementarities like,[STI ⊗ Stakeholding ⊗ Social Inclusiveness ⇒ moral ⊗ materialembedding][θ]. According to shari’ah approach competing dissociations prevail, [STI ⊕ Stake-holding ⊕ Social Inclusiveness ⇒ moral ⊕ material embedding] ⇒ no complementarities as theTawhidi law. Only competition and trade-off prevails. SDG is thus fully dispensed with in theshari’ah approach as adopted by IDB-IRTI.

Empirical Inference of IDB’s Macroeconomic Failure … 91

development approaches has been IDB’s autonomy of financing of its member-ship governments. Yet such membership governments are almost all corrupt anddevoid of constructive imagination of social inclusiveness by involving participativestakeholders.

Conclusion

Statistical Appendix

MurabahaTotal

Leasing + Loan +Istisna’a

APIF(Waqf)

M θ1 L θ2 A θ3 θ = Avg.(θ1, θ2, θ3)

2011 2923.4 4.28 6387.4 5.98 33.5 3.76 4.67

2012 4377.5 6.40 7290.6 6.56 42.8 4.80 5.92

2013 5125.0 7.69 8469.5 7.62 83.7 9.39 8.23

2014 5314.3 7.97 9846.6 8.86 63.8 7.16 8.00

2015 6829.5 10 10673.6 10 89.1 10 10

2016 4097.2 6.15 6710.0 6.04 29.4 3.30 5.16

2017 5323.5 7.99 6461.4 5.81 27.5 3.08 5.62

2018 5499.4 8.25 5664.6 5.10 32.2 3.61 5.65

The Wellbeing Function is Estimated Subject to the CircularCausation Equations in their Log-Linear Forms

We refer here to the above-mentioned estimable Eqs. (4.15)–(4.18).

Regression result (With θ)

lnM = 13.03347111 + 0.723878116 ln L − 0.72164958 ln A + 2.499014199 ln θ

t Stat (11.7204685) (−4.820085) (−8.6091887) (15.8751644)

R2 = 0.98880692

ln L = 16.4435713 − 0.8232588 ln A + 3.01199094 ln q − 1.178608 lnM

t Stat (8.71361192) (−3.5433228) (5.37206366) (−4.8210085)

R2 = 0.97691151

92 4 Content Approach to Analytics of Islamic Banks …

ln A = 16.9420435 + 3.34819257 ln q − 1.3147593 lnM − 0.9211966 ln L

t Stat (6.04069584) (11.3519899) (−8.6091887) (−3.5433228)

R2 = 0.994286966

ln θ = −5.1830667 + 0.39390583 lnM + 0.29159052 ln L + 0.28967714 ln A

t Stat (−12.466873) (15.8751644) (5.37206366) (11.3519899)

R2 = 0.99840769

Coefficient Table

lnM lnL lnA lnq

lnM 0.723878116 – 0.72164958 2.499014199

lnL – 1.178608 – 0.8232588 3.01199094

lnA – 1.3147593 – 0.9211966 3.34819257

lnq 0.39390583 0.29159052 0.28967714

Regression result (Without θ)

lnM = 5.17890636 + 0.30791198 ln L + 0.14450551 ln A

t Stat (0.72672864) (0.31790614) (0.31734493)

R2 = 0.2835854

ln L = 6.83650438 − 0.4045457 ln A + 0.06434436 lnM

t Stat (4.42601542) (3.77711224) (0.31790614)

R2 = 0.81033341

ln A = −13.680785 + 0.1366307 lnM + 1.83040683 ln L

t Stat (−3.4575484) (0.31734493) (3.77711224)

R2 = 0.81032015

Coefficient Table

lnM lnL lnA

lnM 0.30791198 0.14450551

lnL 0.06434436 – 0.4045457

lnA 0.1366307 1.83040683

References 93

References

Ali, A. Y. (1946). The Holy Qur’an, text, translation and commentary. New York, USA: McGregor& Werner.

Ashur, M. T. I. (2013). Treatise on Maqasid as-Shari’ah. Herndon, VA, U.S.A.: InternationalInstitute of Islamic Thought.

Border, K. C. (1989). Fixed theorems with applications to economics and game theory. Cambridge,England: Cambridge University Press.

Choudhury, M. A. (2006). Islamic macroeconomics? International Journal of Social Economics,33(2).

Choudhury, M. A. (2019). The meta-science of Tawhid, a theory of oneness. New York, NY: NewPalgrave.

Choudhury, M. A., & Hoque, M. Z. (2004). Project financing. In Chapter 5 of their Advancedexposition of Islamic economics and finance. Lewiston, NY: Edwin Mellen Press.

Choudhury, M. A., & Taifur, M. A. (forthcoming). Consilience as Islamic methodology of Tawhid(the general socio-scientific framework). In N.Maghrebi, T. Akin, Z. Iqbal, &A.Mirakhor (Eds.),Handbook of analytical studies in Islamic finance & economics. De Gruyter Publishing House.

Choudhury, M. A., Hossain, M. S., & Mohammad, M. T. (2019). Islamic finance instruments forpromoting long-run investment in the light of thewellbeing criterion (maslaha). Journal of IslamicAccounting and Business Review, 10(2), 1–25.

Gaffard, J. (2009). Innovation, competition, and growth: Schumpeterian ideas within a Hicksianframework. In U. Cantner, J. Luc Gaffard, & L. Nesta (Eds.), Schumpeterian perspectives oninnovation, competition, and growth (pp. 7–24). New York, NY: Springer.

Holland, M. (1982). Public duties in Islam (Al-Hisbah Fil-Islam) (I. Taimiyyah trans.). Leicester,England: The Islamic Foundation.

Inglott, P. S. (1990). The rights of future generations: Some socio-philosophical considerations.In S. Busuttil, E. Agius, P. S. Inglott, & T. Macelli (Eds.), Our responsibilities towards futuregenerations (pp. 17–27). Malta: Foundation for International Studies & UNESCO.

IslamicBankBangladesh Limited. (2017). Sustainable growth and shared prosperity.Annual Report2017.

Newsom, J. T., Jones, R. N., & Hofer, S. M. (2011). Longitudinal data analysis. UK: Routledge.Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94,1002–1037.

Stiglitz, J. E. (2018). Where modern economics went wrong? Oxford Review of Economic Policy,34(1), 70–106.

Taqi-ud-Din Al-Hilali, M., & Muhsin Khan, M. (1998). Translation of the meanings of the NobelQur’an. Madinah, Kingdom of Saudi Arabia: King Fahd Complex for the Printing of the HolyQur’an.

Chapter 5Objective Functions of Islamic BankBangladesh: A Critique of IslamicEconomics

Abstract The failure of Islamic banks in general that is exemplified by Islamic BankBangladesh is pointed out by their absence of any true direction of wellbeing in theTawhidi sense of methodology of organic unity of theory and application. In the end,Islamic banks as exemplified by the case of Islamic banks Bangladesh, are shown tobe capitalist shareholding banks with blind reliance on shari’ah as human concoctedjurisdictional approach contrary to the Tawhidi methodological worldview. Conse-quently, many of the actions by IBBL under the guidance of Islamic DevelopmentBank (IDB) and Organization of Islamic Conferences (OIC) while claiming to beIslamically legitimate are flawed. There remainmuch room for improvement to knowthe legitimate understanding in accordance with the Tawhidi law.

Objective and Introduction

The objective of this chapter is to examine the financing features of a prime exampleof Islamic banks, namely the Islamic Bank Bangladesh Ltd. (IBBL) on the basis ofthe Islamic theory of micro-foundation of macroeconomics.1 This formalism thenfeeds into the corresponding econometric evaluation of inter-causality betweenmulti-variates in the wellbeing function as the true Islamic socio-scientific objective. Thisapproach was noted down in the above chapters to represent the correct method-ological application for the evaluation of the Islamic moral and material embeddingin a methodical way. The imminent critical approach that follows thereby relates tothe objective criticism of the method of macroeconomic econometrics that is beingunquestionably used in evaluation of assets and implications of policy-making withrecommendations in present day’s mistaken principles underlying the methodologyand methodical application of the Islamic worldview concerning Tawhidi unity ofknowledge.

1Choudhury (1987).

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_5

95

96 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

The methodology is thereby invoked in this chapter in regards to the specificproblems of evaluating IBBL’s use of methods in the following directions:

1. IBBL continued focus on shareholder’s model of project financing as imitatedwith the general outlook of asset valuation practiced by IDB-IRTI and by shari’ahstandard. The stakeholder model of participative wholeness is unknown in thecontext of inter-causal linkages caused by pervasive complementarities betweenall choices and entities.2 Thus IBBL focuses on the goal of maximization ofshareholders’ wealth rather than simulation of social wellbeing of the commongood as a methodical result. This though is not the intended goal of IBBL.

2. IBBL following the current track of her mentor, the IDB-IRTI, focuses on SDGby the goals of Corporate Social Responsibility and Good Corporate Governancewithin a macroeconomic approach of such essentially ethical issues that belongto the field of microeconomics.

3. IBBL’s focus on maximization of shareholders’ wealth evokes a utilitarianapproach though with ethical intent, yet remaining methodological unsound inits additive welfare and utility background. Such a property negates the systemicway of integrating ethics in material choices.3

4. As a methodological result, the welfare treatment by IBBL experiences indepen-dent inter-sectoral allocation of financial and physical resources. An example isa low emphasis of financing given to agricultural sector in Bangladesh.

5. The absence of endogenous treatment inmoral-material embedding causesweak-ness of the SDG goal, as in the case of IDB. Thereby, a long-term perspective ofthe truly Islamic worldview of SDG is ignored in a methodological sense.

6. IBBL like her major institutional shareholders by not knowing the endogenouslinkage concept between sectors and entities in financing has resulted in a focuson the independent contractual idea of project financing. Thereby, the analyticaloutlook of inter-causal linkages, as in the example of Foreign Trade FinancingCertificate with multiple linked matrix of contracts, remains unknown and aban-doned. Such inter-sectoral and inter-entity multivariate linkages in financing areeffective in jointly realizing product-diversification and risk-diversification to thebenefit of heightened investment.

7. Consequent to the above issues lingering upon IBBL model of financing anddevelopment with objective social inclusiveness, IBBL as an important Islamicinstitution has failed like her other mentors in raising the intellectual outlookof Islamic economics and finance in the truly Islamic methodological sense.This missing aspect of IBBL training program adversely affects her humanresource development, which is considered important in IBBL’s strategic objec-tives. Indeed. IBBL’s human resource development is conducted by IBTRA(Islamic Bank Training and Research Academy) in Dhaka, Bangladesh.

2Lozano (2002).3Hammond (1989), Harsanyi (1955).

Objective and Introduction 97

8. Consequent to the above issues and problems in the methodological modelingthough not intent of IBBL’s Mission and Vision,4 IBBL shares with her mentors5

in objectively understanding the development of a truly Islamic Stock Marketand in participating to realize Islamic monetary policing as a new financial archi-tecture. Likewise, the functioning of Islamic charity and endowment called waqffails in actualizing the wellbeing objective contrary to the focus on economicgrowth and financing for economic growth contrary to social wellbeing.6

A Critical Review of IBBL in the Light of the Theoryof Micro-foundation of Macroeconomics and ItsEconometric Features as the Truly Islamic MethodologicallyEmbedded Methodical Approach

To start with the objectives of IBBL in her Mission and Vision can be found to beno different from any other banking institution. Thereby, no particular demand andchallenge are hoisted on IBBL to enact the truly Islamicworldview of socio-scientificthought and its application to development. The most important of the developmentparadigm is the model of continuity over knowledge, space, and time concerningmoral-material embedding in accordancewith the Tawhidi law of unity of knowledgeand its casting in the evaluation of the wellbeing criterion that represents the unityby complementarities by inter-causality between the learning systems of variables.This indeed is the true and correct perspective of SDG in the Islamic worldview.

In this respect of SDG interactively integrating the evolutionary learning proper-ties of development of soul, mind, and matter in continuums of rising conscious-ness we have the model of actualization given by Ghazali in his depiction ofknowledge through sixty veils of light. Our depiction of such evolutionary learningprocesses through stages of excellence is equivalent to the model of development ofsustainability over continuously complementary, connected by inter-causality move-ment of events occurring in knowledge, space, and time dimensions. The historicalpath of consciousness towards rising understanding of Tawhidi unity of knowledgecomprises the micro-foundational composition of the holistic picture. Figure 5.1delineates the historical path of consciousness in terms of evolutionary learningevents by continuous reference to Tawhidi unity of knowledge and its relationship

4Islamic Bank Bangladesh Limited (2019).5IDB (Saudi Arabia), Kuwait Finance House (Kuwait), Jordan Islamic Bank (Jordan), IslamicInvestment & Exchange Corporation (Qatar), Bahrain Islamic Bank (Bahrain), Islamic BankingSystem International Holding (Luxembourg), Al-Rajhi Company for Currency Exchange &Commerce (Saudi Arabia), Dubai Islamic Bank (Dubai), Public Institution of Social Security(Kuwait), Ministry of Awqaf and Islamic Affairs (Kuwait), Ministry of Justice, Department ofMinors Affairs (Kuwait).6Choudhury (1988).

98 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

True Islamic Mission and Vision IBBL Mission IBBL Vision Do not reflect thetrue Islamic worldview

H Tawhid as law of establish achieve superior organic unity of knowledge Islamic financial translated as the ineluctable banking as performance principle of complementari�es. welfare flourish in modern

{E(θ

θ

)}: Invoking the imminent wellbeing ins�tu�on in banking environment criterion for evalua�on of the equity and Islamic principles of degree of complementari�es as jus�ce in financial soundness: represen�ng Tawhidi unity of economic financial efficiency

{E( )} ac�vi�es; human resource achieve development, balanced accountability, growth by transparency, H diversified integrity of financial The fibre-shape of HH explains inter-systemic investment in systems; Interac�on, integra�on, and evolu�onary learning priority encourage savings Along HH in historical consciousness1 sectors; for direct investment a�ain socio- economic development in low-income communi�es

As an example, similar ethical mission and vision were in the emblem of the coopera�ve movement that arose from the An�gonish movement. It

centered in human resource development, employment, and pooling of resources for the common communitarian good.2

Fig. 5.1 IBBL does not have any particular precepts in its Mission and Vision that can be identifiedas especially Islamic in origin

to the moral-material embedded universality and particulars of the diverse world-systems of micro-foundations. The macro-picture of Historical Path of Conscious-ness ‘HH’ is thus described by its micro-foundations of events (E(θ, X(θ), t(θ)) =E(θ).

IBBL Mission and Vision

As an example, embedded in every such event are the Islamic Mission and Vision ofIslamic Economics and Banking among plethora of wellbeing objective with inter-causal variables existing in their complementarities (positive or negative—maslahaandmafasid, respectively). It is therefore found that therewas no difference in outlookof IBBL Mission and Vision from those of other ethical financial institutions. Themain difference that the true Islamic worldviewmakes with other ethical conceptionsand the presently prevailing Islamic ethical/moral idea is the centerpiece of Tawhid

A Critical Review of IBBL in the Light of the Theory … 99

in the world-system and its functioning. Such an institutional system is exemplifiedhere by banking vis-à-vis the nature of economic and financial concepts used by thepresent days’ Islamic financial institutions. The inference is that the event E(θ) isdifferently characterised alongHHbetween the Tawhid centered financial worldviewand the non-Tawhidi one being pursued by all presently existing financial institutions.

Absence of Modeling the Micro-foundationof Macroeconomics and Thereby theWellbeing Goal in IBBL

The absence of the primal ontological premise of Tawhid in IBBLMission andVisionmeans that ‘θ’ is non-existent in all the financial and economic asset evaluation.Therefore, the endogenous form of circular causation relations to evaluate the well-being objective criterion of Tawhidi genre does not exist in IBBL ‘Business Model’.A principal consequence of such loss of the Tawhidi worldview and its replacementby the shari’ah reference is to be oblivious of the endogenously forward and back-ward related inter-sectoral, inter-financial instruments, and interactively integrated‘Business Model with the Socio-Economic Model’. This implies imminent failure tothe attainment of the goal of SDG in its substantive meaning of the events {E(θ)}. Nochallenge is made in IBBL human resource development while tracking the uncre-ative pursuit of mainstream economics and financial theories to answer the Islamicworldview.The econometrics of exogenous ethics/morality remains afinancial drivenpursuit. It is not driven by endogenous functions of the market processes. Conse-quently, subservience to shareholders and government dependence on risk-aversionpostulate is inevitable.7, 8

A Prescribed Model of Endogenous Inter-causal Dependencefor Asset Valuation

The reinstating of ‘θ’-values in the asset valuation approach in knowledge, space, andtime along HH makes the {E(θ)} as inter-systemic and intertemporal points of assetvaluation that are ‘nearest’ to the point of occurrence of contingencies affecting suchevents. The emergent model of such valuation was shown in a footnote of Chap. 3 inrespect of valuation along the inter-generational asset valuation model. Each event

7Kaku (2015, p. 43) writes: “Consciousness is the process of creating a model of the world usingmultiple feedback loops in various parameters (e.g. in temperatures, space, time, and in relationto others), in order to accomplish a goal (e.g. find mates, food, shelter).” Kaku calls the abovedefinition of phenomenological consciousness as the ‘space–time theory of consciousness’. In ourbook consciousness (phenomenology) will be referred to in terms of the spanning over knowledge,space, and time dimensions.8MacPherson (n.d.).

100 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

point is an evaluation of the moral-material embedded point by circular causation,and hence by evolutionary learnt decision-making points by interaction and integra-tion. Thereby, the entire HH-path so realized is the path of SDG. The evaluation ofthe effectiveness of events along HH in respect of SDG causes the monitoring ofthe direction towards SDG and frames the model of wellbeing evaluated subject tocircular causation endogenous relations between the representative variables of SDGin the wellbeing function.

An example of such a critically different way of asset valuation by the ‘nearest toprobabilistic event points’ is the evaluation of effectiveness of CSR and GCG. Theseare elements inherent inSDG.Thereby, SDG,CSR, andGCGdriven as consciousnesshas been defined above to be of phenomenological nature driven by ‘θ’-parameterof Tawhidi unity of knowledge embedded in generality and particular issues andproblems of diversely interactive, integrative, and learningworld-systems.Accordingto the Tawhidi Mission and Vision of Fig. 5.1, SDG is defined by SDG(θ) along theevents describing the historical path of consciousness HH. The endogenous elementsof SDG(θ) are defined by Conscious CSR − CSR(θ).

CSR andCSR(θ) are different concepts and practices. CSR is exogenously policedfor attaining certain social goals. Such targets and policies are enforced by interna-tional development organizations, national governments on institutions. IBBL is anexample. CSR(θ) is deontological moral/ethical/social consciousness. It is thereforean endogenous act and outcome of interactive learning to set targets and and goals ofsocial corporate behavior. The participants at the event points of {E(θ)} in the deriva-tion of policies, programs, and guidance collectively determine their directions outof deontological consciousness. This is formed by knowledge in the organic senseof inter-causal unity of relations. The Qur’an (24:38–39) declares regarding suchconscious business behavior: “[Are] men whom neither commerce nor sale distractsfrom the remembrance of Allah and performance of prayer and giving; that Allahmay reward them [according to] the best of what they did and increase them fromHis bounty. And Allah gives provision to whom He wills without account. They feara Day in which the hearts and eyes will [fearfully] turn about.” The implication is onIBBL to turn to the Tawhidi Mission and Vision and its asset valuation implicationsin the face of the Tawhidi worldview of unity of knowledge entrenched in organicunity of knowledge and the world-system of finance, economics and commerce.

Likewise, GCG and GCG(θ) are different concepts. This calls for the contrastingdepiction of the two similar yet contrary concepts of Good Corporate Governance. Inthe case of IBBL’s adoption of GCG there is no difference between the conventionaland IBBL understands of Islamic version of GCG. Yet there is difference betweenGCG in both the conventional and IBBL’s understanding contrary to GCG(θ).

In conventional definition, “Corporate Governance is concerned with holding thebalance between economic and social goals and between individual and communalgoals. The corporate governance framework is there to encourage the efficient use ofresources and equally to require accountability for the stewardship of those resources.The aim is to align as nearly as possible the interests of individuals, corporationsand society” (Sir Adrian Cadbury in ‘Global Corporate Governance Forum’, World

A Prescribed Model of Endogenous Inter-causal … 101

Non-Tawhidi e Islamic ey as the Episteme Tawhid as the Episteme

D

Objec�ve

Board

Independ.

Directors

Pressure Groups

Shareholders

Regulatory Authority Non-Management

Agents: Customers,

Tawhidi Board as Ul�mate Governance

Execu�ve Director

Management

Employees

Regulatory authority

Social

Shura: consulta�on & discourse General Par�cipa�on; Stakeholder’ Par�cipa�on; Community Par�cipa�on; Automa�c Transparency & Disclosure

Minimal Regula�on needed due to reproduc�on of unity of knowledge and conscious control leading to Social Wellbeing: Complemen�ng Private and Social Goals

Private

Suppliers distributors

Fig. 5.2 Comparative views of Corporate Governance: Islam and the other perspective

Bank, 2000).9 IBBL equates this definition with its own, as shari’ah perspective ofGCG. There remains the subtle difference of GCG(θ) in respect of the epistemegoverning wellbeing objective of the Tawhidi foundation of micro-foundation of themacroeconomic outlook of IBBL and its utilitarian perspective of maximization ofshareholder’s wealth. The latter episteme arises from the concept of competition inthe allocation of resources that permeates the axiomof economic rationality. The epis-temeof pervasive complementarities and the interactive, integrative, and evolutionarylearning worldview of organic unity of knowledge in the Tawhidi methodologicalworldview establish the full scale of participation and complementarities.

The difference between the two sides of Tawhidi and non-Tawhidi basis ofdefinition of GCG can be explained by Fig. 5.2.

With the above explanations of the vector {SDG, CSR,GCG}[θ] being commonlyinduced by unity of knowledge denoted by ‘θ’-value as a quantitative representationof the wellbeing criterion, a more disaggregate list of representative variables canbe set up. We maintain the critical variables that IBBL focuses on in its ‘BusinessModel’ and Strategic Planwith the difference of inter-variable induction by ‘θ’-value.Thereby,

9Cadbury (2000).

102 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

SDG(θ) ={human resource development (x1), employment creation (x2), output to indicateeconomic growth (x3), price to form real output and indicate financial stability (x4),poverty alleviation (x5)financial adequacy aswith Basel III (x6), environment conser-vation (x7), risk management (x8), trade creation (x9), economic efficiency (x10),equity (x11)}[θ] = identically to,

SDG(θ) = {x1, x2, x3, x4, x5, x6, x7, x8, x9, x10, x11}[θ]

Likewise, CSR(θ) = {employment creation (y1), poverty alleviation (y2), environ-ment conservation (y3), financial equity and fairness (y4), avoidance of interest (riba)(y5), financial social inclusiveness in community (y6)}[θ] = identical to,

CSR(θ) = {y1, y2, y3, y4, y5, y6

}.Some of the y′smay be identical with x′s. (5.1)

GCG(θ) = {productivity (z1), efficiency (z2), avoidance of interest based business,riba (z3), avoidance of socially forbidden activities and choices (z4), socially inclusivefinancing (z5), employment creation (z6), transparency (z7), disclosure (z8), environ-ment consciousness (z9), Basel III abidance (z10), work ethics (z11)}[θ]= identicallywith,

GCG(θ) = {z1, z2, z3, z4, z5, z6, z7, z8, z9, z10, z11[θ].Some of the z′smay be identical with x′s and y′s. (5.2)

IBBL does not carry out its Islamic functions in the conscious presence of ‘θ’-value because its activities are governed by independently distributed contracts(uqud). Consequently, a ‘Business Model’ of organic inter-causal relations betweenSDG(θ), CSR(θ), and GCG(θ) does not exist. The macroeconomic model empha-sizing economic growth is followed. In the neoclassical macroeconomic modelingthis focus of goal leads to resource constraint and thereby substitution betweeneconomic growth with efficiency and social inclusiveness. This consequence is notintended by IBBL. Yet it is a methodological result of its ‘Business Model’. IBBLAnnual Report 2018 (p. 21) points out the growth-oriented pursuit of her financialactivities in the following words: “IBBL has been ceaselessly working to strengthenthe economic base of the country since its inception and thereby contributing tocountry’s GDP.” Yet it is well-known that GDP growth has no relationship with theobjective of wellbeing, which essentially plays the central role in the complementaryinterrelations between the goals of SDG(θ), CSR(θ), and GCG(θ) in terms of theirvarious representative variables and their further disaggregation.

The IBBL ‘BusinessModel’ of financial growth complementing the national focuson real GDP as indicator of economic growth has proved to be a sad experience inthe direction of life-fulfillment wellbeing model for the common good. The pursuit

A Prescribed Model of Endogenous Inter-causal … 103

of growth as national goal in which business corporations participate to attain hasresulted in Bangladesh being deeply corrupt nation in all its sectors.10 The inde-pendently comprised values of shari’ah is an example of disaggregate approach tomoral/ethical/social inclusiveness. IBBL is a strong follower of such a disaggregatevalue model of shari’ah.11

The model of the disaggregate type represents the econometric model of exoge-nous ethical consideration. We explained this problem of macroeconomic aggre-gation in econometrics in earlier chapters. Just as the macroeconomic approachof econometrics cannot explicate the endogenous role of morality/ethics in humanbehaviour, so also IBBL’s ‘Business Model’ cannot explain the true role of Islamicmicroeconomics in the aggregativemodel. For example, fiscal expansion as spendingis seen as a macroeconomic variable that is spent in activities such as, microfinanceand only marginally as charity to alleviate poverty. The micro-entrepreneurial modelas opposed to microfinance model, and which in the class of endogenous relationalapproaches, is not within IBBL’s purview. The proverb goes: “You give a poor mana fish and you feed him for a day. You teach him to fish and you give him anoccupation that will feed him for a lifetime.” Microfinance as exogenous fiscalspending variable is macroeconomic in nature. Micro-enterprise is microeconomicin nature. It induces SDG(θ) goal of sustainability of human resource development,empowerment, poverty alleviation, and dynamic life-fulfillment regime of poverty-centered endogenous development by inter-sectoral linkages and the complexity ofθ-induction.12

10Transparency International (2018).11The shari’ah independently distributed model: (Religion) + (intellect) + (family) + (progeny)+ (property). We note that there is no circularity of relations between the component parts insuch a utilitarian additive expression. Shari’ah therefore does not invoke the highest watermarkof protection of religion (monotheism) in going about calling upon any of the other componentswithout relational linkages between them. Note thereby, that in calling upon the component ofproperty right, IBBL emphasises its shareholding model rather than the ‘Business Model’ of stake-holders’ wellbeing. IBBL raised by shari’ah on financial matters emphasises product developmentby referring to it as shari’ah compliance. Yet the element of progenitor wellbeing is missed outby ignoring the meaning of intertemporal valuation of present decisions. Indeed, all of shari’ah-based ‘Islamic’ banking has become an exercise in product development. An example of such acase is upholding of Islamic insurance (takaful) without intertemporal pricing of premium. Anotherexample is of waqf (endowment or perpetual charity) in educational institution without examiningthe relevance of such an institution for grassroots educational development but religious purpose(Azha, Baharuddin, Sayurno, & Salahuddin, 2013).

Contrarily, the Tawhidi worldview of monotheism reflected in organic unity of knowledge byinter-causal relations of wellbeing is W(x(θ), θ = f((Religion) × (intellect) × (family) × (progeny)× (property)), approximating to the quantitative evaluation of θ= θW(x(θ)). The evaluation complexsystem of interaction, integration, and evolutionary learning is explained by the non-linear formsof the inter-causal relations between the endogenous variables of the vector x(θ). The function ‘f’explains families of extension of the five basic values as shown. A similar causal system model, butby method only and not the methodology of the Tawhidi genre of unity of knowledge, was givenby Simon (1957).12Barquero (2007).

104 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

The Market Perspective of IBBL ‘Business Model’

Theeconomicdefinitionofmarket is process of exchangebetweenbuying and selling.This definition ought to be accepted by shari’ah as well. However, it raises a series ofconditions for exchange that are confusing and untenable for the sake of profound-ness in simplicity. The most problematic one of such conditions that is not to befound in the certainty of bestowal as in the Qur’an (16:97)13 is valuation of expectedmoral and material felicity to come. Even in the case of the probabilistic valuation‘nearest to an event point along HH’ the exchange by real possession (qabd) is notthe only way of well-determining prices and moral-material embedded reality asvalues of exchange and exchangeable. In such valuation ‘nearest to an event point’the monetary and fiscal flows remain closest to each other in the probabilistic sense.Therefore, they are not exactly equal, but ought to close in to near equality. Thereby,neither the general equilibrium of macroeconomics is pursued only in the proba-bilistic evolutionary learning sense towards full-employment level of output. By thesame token market equilibrium remains expectational by virtue of the property ofevolutionary equilibrium at the nearest event point along the asset valuation life ofHH in Fig. 5.1.14

Continued dependence on macroeconomic perspective of asset valuation andIBBL performance within the Bangladesh national economic framework has causedimpossibility of establishing an Islamic monetary system. IBBL operating within afractional reserve monetary system of Bangladesh Bank without a robust alternativeof Islamic monetary system has disabled the successful avoidance of riba from allforms of intertemporal microeconomic approaches to financing. The backgroundshari’ah outlook on monetary matters has never been able to provide an alternativeIslamic monetary regime and thereby suggest the greater goal of providing a newfinancial architecture to InternationalMonetary Fund.15 Thus along with its principalmentor, the IDB, and the following blindly of shari’ah as a compliance basis of itsfinancing modes, projects, and sectors, IBBL has failed to impart any innovativechallenge in its human resource development program of IBTRA, despite being aforerunning ‘Islamic’ banking institution globally. The micro-foundation of Islamicmonetary theory has remained impossible in the minds of ‘Islamic’ economists,which truly can be the way to the understanding and implementing of an Islamicmonetary theory, just as such an intellectual pursuit has been the great contributionof the Austrian School of Economics in this area.16 Along with the fiasco of the fiscaland monetary endogenous transformation much of the great expectations of Islamicchange in ummah context have been rent asunder. In this failure the entire gamut of

13Qur’an (16:97): “Whoever works righteousness, whether male or female, while he (or she) is atrue believer (of Islamic Monotheism) verily, to him We will give a good life (in this world withrespect, contentment and lawful provision), and We shall pay them certainly a reward in proportionto the best of what they used to do (i.e. Paradise in the Hereafter).”.14Burstein (1991).15Choudhury (2018).16Yeager (1983).

The Market Perspective of IBBL ‘Business Model’ 105

adverse consequences has been unbarred comprising advancement of methodolog-ical thought of the Qur’an, and its formal applications to markets, economy, scienceand society. The Great Schumpeterian Gap actually prevails in present times despiteits questioning by Ghazanfar17 in the history of economic thought.

In the midst of this grand failure since the advent of Islamic banking, the emer-gence of Islamic development financial institutions like IDB, political institutions likeOIC, and the capital surplus Muslim countries, the central features of their yearningfor an Islamicworld-system got dashed and crumbled. This deepening decadence hascontinued to destruct the Islamic ideals in collective nation states and their financialinstitutions. As the years have passed, the withered image of the Muslim World gotentrapped in the capitalist globalization agenda succumbed to this converging mono-lith.18 In the end what we find in the MuslimWorld by its mental transformation andsurrender to globalization is an increasingly complete fading of their identity thatotherwise could have been erected in the Islamic worldview with qur’anic depth ofunderstanding and practice in all aspects of the Muslim and other world-system.Where we stand today is what Roy (2006, op cit) rightly calls ‘globalized ummah’and what Waltham19 refers to as ‘marketplace of the gods’. Indeed, IBBL makesa clarion call for an Islamic monetary system to realize its Islamic future. But thetilts of the mind, thought, subservience, and dismay have thwarted this dream. IBBLinstead, like all Islamic institutions carrying the outmoded ideas of shari’ah and itsgurus, has changed into a profit-driven shareholding financial institution of Islamiccapitalism having offices with collapsing walls. We pray and wish it can be contraryto these ailing realities by conscious transformation into wellbeing ‘BusinessModel’under Tawhid as law as substantively explained in its ontological, epistemological,and phenomenological sense.

Contrary to such a framework of evolutionary equilibrium arising out of interac-tion, integration, and learning around the ‘nearest event point’, E(θ), IBBL relentsto the mainstream idea of steady-state equilibrium that is embraced by the ‘Islamic’economists and their mentoring institutions such as IBTRA (IBBL) and IDB-IRTI.Such a theoretical macroeconomic and microeconomic reliance causes errors in thesustainability of investment perspective. The assumptions of optimal and steady-state equilibrium in investment as financial resource allocation deny the embeddingeffects of moral/ethical values in material choices. Thereby, a competition ‘Busi-ness Model’ project-wise, sector-wise entails in the neoclassical utilitarian type oftrade-off by substitution between shareholders’ maximization of wealth in the nameof financial efficiency by adopting growth-oriented modes of financing on the onehand; and limiting ethical spending. It is therefore difficult to trace out amounts ofzakah spending by Islamic banks to account for development finance in poverty-centered socio-economic growth. The same state of poverty-alleviation activities byIslamic endowments (waqf) exists in Islamic banks. Much of the literature found in

17Ghazanfar (1995).18Rodinson (2007).19Waltham (2010).

106 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

these areas of charitable spending is in the form of theoretical writings. The data forIBBL on its various modes of financing will be examined later in this chapter.

The embedding of SDG, CSR, and GCG by ‘θ’-parameter of unity of knowledgein the Tawhidi context of organic endogenous relations is similarly explainable byLancaster’s attribute theory of demand.20 Yet the utility implications of Lancaster’scharacteristic theory of demand do not abide in respect of θ-induction. That is becausethe methodology of unity of knowledge in the micro-foundation of resource alloca-tion, as for the case of financial investment, is based on pervasive complementaritiesbetween opportunities.21 This negates the postulate of marginal rate of substitution,and the scarcity axiom caused by competition and trade-off. Continuous knowledge-induced possibilities negates the axiom of scarcity and thereby all of the derivationsfrom the axiom of economic rationality. IBBL’s imitation of mainstream ideas offinancial economics in allocation of finances for investment by sectors, projects,and by modes of financing as professed by ‘Islamic’ economics and finance, andcomplied by shari’ah contra Tawhid as law do not appertain to the sustainability ofvillage and poverty centered development and development financing of microenter-prises, or by the wellbeing focus of spending by modes of financing. Islamicizationin relations to Islamic banking, Islamic educational institutions, and failed Islamicscholarly outlook has been a deepening in mainstream westernization ideas.22 Thismisleading frenzy has run the globalized ummah to the bottom.23

Critical Examination of IBBL Data

The following tables bring out the limited nature of IBBL financing in the ethicaldirections of poverty alleviation that could otherwise sustain according to the creationof agricultural sectormicroenterprises (differently categorised thanSME) and knowl-edge along this line. The tables also point out that, IBBL financing is skewed in thedirection of such financing around which the objective of maximization of share-holders’ wealth revolves. In Bangladesh microenterprise can be considered as away towards poverty alleviation because of the low amount of start-up financingthey require and because of their location in villages. SMEs, which are larger thanmicroenterprises abound as well. Therefore, socially inclusive financing for thebenefit of microenterprises and rural based poverty alleviation should show up as

20Lancaster (1966).21In the case of θ-induction inmicroeconomic sense, investment is disaggregate by projects, sectors,diversifications, and modes of financing. Besides, in terms of the inter-causality between variousinvestment outlets (i, j), we denote such investment function by, Iij(xij(θ), θ) = ∏

ijxijaij(θ) · θbij ·{xij(θ)}-vector comprises all morally/ethically embedded material choices in the presence of theirinteraction, integration, and evolutionary learning by linkages. This expression can next be writtenin the log-linear form with non-linearity caused by θ-induced coefficients, aij, bij, i, j + 1, 2, …, n.Iij(xij(θ), θ) is a system of circular causation relations of the wellbeing function.22Sardar (1984).23Roy (2006).

Critical Examination of IBBL Data 107

Table 5.1 Sector-wisegeneral investment,2016–2017 (percentages oftotal investment)

2017 2016

Industry (excluding SME) 36.26 35.50

Commercial 7.36 7.12

Real Estate 7.00 7.78

Agriculture 2.37 2.50

Transport 1.17 1.23

SME 40.75 30.75

Other 5.00 6.08

Source Islami Bank Bangladesh Annual Report 2017

a recognizable financing margin. Besides, the large segment of financing of indus-trial projects point to a focus on profit-maximization drive by IBBL. Thereby, theobjectives of the IBBL in either the maximization of the firm and social inclusivenessare no different from the conventional pattern of financing.

Consequent to the modes of financing we note that up-front profit making byuse of murabaha financing opens up critical view on the Islamic legitimacy of sucha financing mode. In it the up-front pricing mark-up without having a realizationof returns and determination of cost and risk at the time of their occurrence, makesmurabaha as mark-up financing to be questionable as a socially inclusive permissibleIslamic mode of financing. By the same argument, neither can murabaha be calledan Islamic mode of financing nor any other mode of financing that revolve aroundmurabaha be accepted as permissible in the Islamic category of morally/sociallyinclusive financing. Nonetheless, IBBL and likewise most Islamic banks includingIDB that we have seen concentrate their financing in murabaha and the like, such asmega-project financingof sukuk (Islamic bondfinancing), rents (ijara), istisna (manu-facturing and industrial loans on specified projects), bai-muajjal, bai-salam, andquard e-hasana. These modes of financing are all made to revolve around murabahaand marginally only around the truly Islamic modes of financing by mudarabah andmusharakah. The murabaha-based financing thereby remains questionable by theirriba-like contamination on all forms of pricing (Tables 5.1 and 5.2).

Circular Causation in IBBL Financing of AgriculturalSector, 2016–2017 (Millions of Taka)

Table 5.3 gives the financing done by components of the Agricultural Investment.Time series data are not available to evaluate the estimation of wellbeing subject tocircular causation relations between the components. Therefore, a content analysisis undertaken here.

Table 5.3 when converted into cross-sectional form will appear as shown in Table5.4 in terms of amounts of percentages as needed.

108 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

Table 5.2 Mode-wise investment 2016–2017 (percentages of total investment)

2017 2016

Bai-murabaha (mark-up financing) 61.67 62.00

HPSM (Hire purchase under shirakat Milek) 22.79 22.64

Bai Muajjal (sale on credit) 8.55 8.82

Bill purchased and negotiations 1.93 2.30

Quard (loan) 2.81 2.28

Bai-Salam (future sale for payment now) 1.48 1.05

Mudaraba (profit-sharing) 0.70 0.81

Musharaka (equity financing) 0.07 0.10

Source Islami Bank Bangladesh Annual Report 2017

Table 5.3 Percentage distribution of components of Agricultural Investment, 2016–2017

Millions of Taka Percentage distribution Variables in t =2016–2017By projects/regions (i)

Components

Crops 2984 25.61 x1i

Fisheries 2374 20.37 x2i

Livestock 3518 30.19 x3i

Irrigation equipment 20 0.17 x4i

Agriculturalequipment

62 0.53 x5i

Poverty alleviation 1940 16.65 x6i

(4% of sector-wise general investment)

Storage 104 0.89 x7i

Others 650 5.58 x8i

Total 11,652 100

Table 5.4 Cross-sectional conversion of surveyed data as in Table 5.3

Inter-project distribution at a given time-period

Column vector x1 x2 x3 … xn = x

Projects x1i x2i x3i … xni = {xji}

1 x11 x12 x13 … x1n = {x1i}

2 x21 x22 x23 … x2n = {x2i}... · · ·n xn1 xn2 xn3 … xnn = {xni}

Circular Causation in IBBL Financing of Agricultural … 109

The disaggregate data that can be retrieved from IBBL database will yieldthe following wellbeing evaluation model of micro-foundation of IBBL’s presentmacroeconomic aggregate picture. The latter outlook is presented in IBBL’s goal ofeconomic growth, given the trade-off of its financing resources between the ‘Busi-ness Model’ of shareholders’ maximization of wealth, which is the same as its ownmaximization of the value of firm on the one hand; and socially inclusive financingon the other hand.

Evaluate Wellbeing,W(x(θ))

(estimate& subject to circular causation relations,

Simulation) xi(θ) = fj(xj(θ), θ), i �= j = 1, 2, . . . , n

θ = W(x(θ)), quantitative form of the evaluatedwellbeing function(5.3)

The method of computation of θ-values corresponding to the given vectors of vari-ables and thereby calculating the average θ-value for wellbeing evaluation purposeswas explained in earlier chapters.

As the cross-sectional data for the period 2016–2017 shows that, if such persiststo be the trend, then weak inter-causality would exist between the various compo-nents of Table 5.3. Consequently, empowerment that must inter-relate with povertyalleviation is shown to be weakly related with the empowering complementaryrelationships between the x(θ)-vectors. The evaluation of the wellbeing functionin terms of θ-parameter would show the weak existence of the objective criterion ofwellbeing (maslaha) in respect of unity of knowledge by complementary relationsbetween the inter-causal variables. The appropriateness of IBBL’s performance inthe true (Tawhidi) direction of wellbeing will be questioned. The continued adop-tion of shari’ah in the face of such failure would mean the weakness of the shari’ahparadigm in any of its diverse forms.

Conclusion

The content of this chapter although exemplified for IBBL as a foremost privatesector Islamic bank but presently universally applicable to all Islamic banks bringout certain realities. Their failure points to questioning surrounding shari’ah as juristicpractice by the long time span of interpretations of juristic practices claimed to bederived from theQur’an and sunnah according to sectarian interpretations (madhabi).However, the ontology of the shari’ah as law found in the Qur’an (45:18)24 is itself

24Qur’an (45:18): Then We put you, [O Muhammad], on an ordained way concerning the matter[of religion]; so follow it and do not follow the inclinations of those who do not know.

110 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

the ‘way’ towards Tawhid. Hence all the artefacts of economic, financial, social, andscientific analysis done must be fully embedded in Tawhid as the law of oneness castin terms of the moral-material unity of knowledge. This embodies the paired detailsof all world-systems. Variables representing beings in such a unified world-systemby complementarities are the endogenous elements of micro-foundational totality ofmacroeconomics and of its enabling analytical devise of econometrics. This is theQur’anic methodological worldview that stands for estimation and simulation in thewellbeing objective criterion. Therefore, according to thementioned verse, as long asshari’ah as the ‘way’ of knowing unity of knowledge in the universal and unique lawof monotheism emanates and ends in Tawhid, and the ‘way’ emulates the ontologyof Tawhid, then there is no difference in the substantive meaning between shari’ahand Tawhid as law. In such a case all the qur’anic laws and further derivations fromthem in reference to the formalism of Tawhidi law in unity of knowledge remainacceptable on both sides.

We therefore write for all of the Tawhidi construction of micro-foundation ofmacroeconomics delineated by the class of analytical (portable ontologies) func-tions (f(θ, x(θ))) referring to the primal ontology of Tawhid as law (Chap. 1): (�, S)→World-System{(θ, x(θ)}= {f(θ, x(θ))}→ (�, S). In themeaning of thementionedverse, this entire continuum of knowledge-induced process conveys shari’ah asTawhid. Yet any law and its interpretation that fails in such identification is a humaninnovation non-compliant with the meaning and function of Tawhid as law. Shari’ahhas failed over the ages in this respect of being unable to stay the task of Tawhidi iden-tification. Consequently, in the field of Islamic reconstruction of micro-foundation ofmacroeconomics and its use in econometrics that emanates, the continued shari’ahpronouncements and its imitation by so-called ‘Islamic’ economics, finance, science,and society has failed itself in the qur’anic sense and all that engender thereby.

The other meaning that arises from the misplacement of shari’ah in all Muslimfunctioning is the misunderstanding about shari’ah as if this is a law different fromTawhid as law that has to be given precedence on all worldly matters. There can benothing farther away from the qur’anic truth. In this way the inconsistency betweenTawhid as law and the juristic development of shari’ah displacing it from any substan-tive formal understanding of the ontological foundation has caused the disappearanceof creativity and intellection in both the empty credulity ofMuslims and its attempt tobe immersed inMuslim so-called ‘Islamic’ thought and its institutional following. Inthe theory of micro-foundation of macroeconomics with complete system of endoge-nous inter-causal relations the wellbeing formalism replaces most of the Islamicimitation of mainstream econometrics. The dichotomy between fiscal and monetarypolicies of mainstream macroeconomics and its overall general equilibrium conse-quences in output, prices, resource use, and employment in both the closed andopen economies, have subdued the analytical understanding of ethical endogeneity.Predictability of Islamic futures by such models has failed. Relevant policies haveceased to exist. Incorrect directions and false expectations have been raised in thename of juristic shari’ah (fiqh). IBBL as a member of the class of Islamic banks

Conclusion 111

and their mentorship of IDB-IRTI, and their training institutions have thus followedshadows not reality.

In regards to the abovemeaning of uniqueness of Tawhid as universal law towhichshari’ah must submit for its identity, Ibn al-Arabi wrote25: “Useless knowledge isthat which is disconnected from its source and origin, i.e. from the divine reality. Anyknowledge outside of Tawhid leads away fromAllah, not towardHim.But knowledgewithin the context of Tawhid allows its possessor to grasp the interconnectedness ofall things through a vast web whose centre is the divine. All existent things comefrom Allah and go back to Him.”

This means that not only the ontological beginning and end of existence ispremised in Tawhid (monotheism), but also the ‘way’ derived to reach these endsis uniquely and universally driven by Tawhid. In the case of the micro-foundationof macroeconomics in Islamic methodological worldview the place of shari’ah asjurisprudence and its interpretation (fiqh) as far as this is derived by human incli-nations for time immemorial, has never referred to this qur’anic verse to identifyshari’ah with Tawhid as the law of ‘everything’.

In the end,what should be a blueprint ofmicro-foundational evaluation and predic-tive directions for Islamic banking under the inter-causality dynamics of complemen-tarities of choices in the Tawhidi light of unity of knowledge? Here is a propositionfor such a blueprint based on the centrepiece being the wellbeing objective crite-rion. The growth target is not the main one. It is a derivative and a propeller of thewellbeing objective in the sense of interactive, integrative, and learning organic inter-relationship that endogenously unravel at the micro-foundational level. In Fig. 5.3double arrows denote inter-causality between the component variables of the well-being objective criterion in unity of knowledge. The arrow denotes continuity of thewellbeing objectified sustainability.

25Chittick (1989).

112 5 Objective Functions of Islamic Bank Bangladesh: A Critique of Islamic Economics

1. Financing bymicroeconomic aggregates of sectors in sectors in outputs and inputs

2. Modeling forworkability andpredicatbility crea�vity and 3. ins�tu�onalpolicy and reflexivity Formalism and regulatory framework at applica�on micro-founda�on of projects Focus on Wellbeing and sectors SustainabilityAs objec�ve criterion For ar�cula�ng the Tawhidi methodology 1. Ontologically driven in Tawhid Policy simula�on evolu�onary

2. Human resource development learning

3. Research & Development

4. Discursive venue

Fig. 5.3 A snapshot of blueprint for IBBL (Islamic Banks and IDB) ‘Business Model’

References

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Barquero, A. V. (2007). Endogenous development, theories and policies of territorial development.Investigaciones Regionales, 11, 183–210.

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Chittick, W. C. (1989). Sufi path of knowledge. Albany, NY: State University of New York Press.Choudhury, M. A. (1987). Microeconomic foundations of Islamic economics as a study in socialeconomics. American Journal of Islamic Social Sciences, 3, 2.

Choudhury,M.A. (1988). The conflict between efficiency and equity goals inmanpower economics.Forum for Social Economics, 17, 2.

Choudhury, M. A. (2018). Comparative Islamic perspectives in money, monetary policy, and socialwellbeing. Journal of Economic Cooperation and Development, 39(1), 143–162.

Ghazanfar, S. M. (1995). History of economic thought: The Schumpeterian ‘Great Gap’, the ‘lostArab-Islamic legacy, and the literature gap. Journal of Islamic Studies, 6(2), 234–253.

Hammond, P. J. (1989). On reconcilingArrow’s theory of social choicewithHarsanyi’s fundamentalutilitarianism. In G. R. Feiwel (Ed.), Arrow and the foundation of the theory of economic policy(pp. 179–221). London, England: Macmillan.

Harsanyi, J. C. (1955). Cardinal welfare, individualistic ethics, and interpersonal comparisons ofutility. Journal of Political Economy, 63.

Islamic Bank Bangladesh Limited. (2019). Annual Report 2017. Dhaka, Bangladesh.Kaku, M. (2015). Consciousness—A physicist’s viewpoint. In The future of the mind, Chapter 2.New York, NY: Anchor Book.

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Lancaster, K. J. (1966). A new approach to consumer theory. Journal of Political Economy, 74(2),132–157.

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Rodinson, M. (2007). Islam and capitalism. London, England: SAQI Books.Roy,O. (2006).Globalized Islam, the search for aNewUmmah.NewYork,NY:ColumbiaUniversityPress.

Sardar, Z. (1984). Islamisation of knowledge, or the Westernisation of Islam? Inquiry, 1, 7.Simon, H. (1957). Models of man. New York, NY: Wiley.Transparency International. (2018). Corruption perceptions index 2017. Retrieved March 6, 2018,from www.transparency.org.

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Chapter 6The Meso-Economics of the WellbeingCriterion

Abstract The theory and application of wellbeing are substantively different fromthose of welfare of the neoclassical and social choice theory. The concept of well-being has the wider implication in constructing models of social contract out ofserious consideration of moral and ethical issues in social construction and develop-ment. Yet wellbeing is neither an exclusively microeconomic nor a macroeconomicconcept. That is because the individual is considered in respect of his potential withinthe interactive social milieu. The theory of wellbeing in its multidimensional human-centered development perspective is studied in terms of the human capability and itsfunctioning approach (CF) for attaining or failing to attain human development ashuman potentiality. The CF-theory has been advanced in the light of Amartya Sen’slearned contribution to this field. In this chapter the CF-theory and its comparisonand contrast with the social choice and utilitarian theory of the neoclassical typeof welfare criterion is critically examined. Other critical approaches to the study ofhuman wellbeing, as in the case of Islamic theorizing, are examined. Arising fromsuch critical studies the different yet all comprehensive formalization and appli-cation of the wellbeing concept is propounded in the form of an analytical modelpremised on epistemic and ontological foundations of unity of knowledge. Thisapproach treats human wellbeing as being interactively integrated with the physi-calist and non-physicalist domains comprising the interaction between capabilitiesand functioning towards sustaining the moral worldview of a unique and universallaw. It is the monotheistic law of unity of knowledge called Tawhid that forms thecardinal foundation of Islamic methodological worldview. An empirical explanationof the emergent model of the wellbeing criterion in the methodological frameworkof Tawhid is provided to establish the ontological, epistemological, and phenomeno-logical properties of the corresponding meaning of the wellbeing criterion in itsepistemic sense.

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_6

115

116 6 The Meso-Economics of the Wellbeing Criterion

Introduction

The pursuit of goals like economic growth and development, the dichotomy betweenmicroeconomics and macroeconomics, and economic welfare contrary to socio-scientific concept of wellbeing integrating all branches of sciences by a cogent theoryof oneness has not been developed in the literature. Yet such a robust study of analyt-ical oneness premised on strong methodological groundwork is as seriously requiredfor the changingworld-systemof economic and social turbulences today as is the shiftof science as process by its general unified theory of unity of being and becoming.

Yet the current state of economic and social theories has not matured sufficientlyto investigate such a real phenomenon even though this methodological approachprojects itself as the unique issue of the new ontological discovery. This chaptercontinues along the line of arguments in this entire treatise that, there is only onetheory that explains the entire universe in its generality and particulars with distinc-tions being only in the issues and problems, not in the attenuating unique method-ology. This book as also this chapter premises the methodology of the universalprimal ontology to be unity of knowledge. This ontological premise emanates fromthe analytical understanding of monotheistic oneness in the realm of Islamic socio-scientific philosophy. It then translates into the phenomenology of quantitativelyapplied applications and persists over knowledge, space, and time dimensions. Thesesequential properties of the uniquemethodology of oneness aremost soundly studiedwith analytical rigour in the quantitative formalism of the socio-scientific wellbeingcriterion.

Demise of the concept of welfare function in neoclassical utilitarian economics(Harsanyi, 1955) and in the social choice theory of Arrow (1951) and Sen (2002) hasled to the rise of the concept of wellbeing in terms of human development. Withinthis latter concept, Sen’s (2010) contribution to the theory of human capability andfunctioning (CF) as the foundation of the index of human development presents amultidimensional view of development in human-centered epistemological sense.Consequently, poverty alleviation as a development ethical goal, can be viewed asa development choice governing certain acquired possibilities that must be at thedisposal of target groups of the poor. Among these are the availability, distribution,and ownership of productive resources, income generation, security of health, humanresource development, commodities, social awareness and discursive participation—all the means towards attaining developmental capabilities as functioning. Thereby,the capability in the form of owning a stock of accumulated human resource/humancapital influences diversely the functioning as choice of experiential living in targetgroups of individuals. Thereby, the social influence of such CF bundles reflects onthe adopted pattern of human development (Clark, 2005).

An example of such a social consequence of a particular holding of CF is of theCanadian Aboriginals, who have their traditional ways of living and choices withwhich they remain happy and more enabled. Yet such a model of CF defining theirwellbeing does not comply with the CF of industrial Canada, which predominates.

Introduction 117

The result has thus been exclusion of the rich Native heritage in the materiallyabundant and rewarding façade of industrial Canada (Mendelson, 2004).

Another example of an exclusive and differentiated effect of CF in developmentparadigm is the case of the Muslim World. Muslims of the contemporary age havebeen dismayed in their prevailing development trajectories by two contesting viewsof life (Al-Azm, 2014). Firstly, there are those who surrender themselves to religiousritualism. They consider realization of Islam as being shaped by a disparate beliefin self, social, and global identity. This worldview is opposed to the model of civilsociety of neoliberalism.On the other hand, in theMuslimWorld there are theMuslimelites who press for the secular model of Occidentalism.

There is yet a third group that seeks for its identity in an undefined assimilationof Islamic and secular ways of geopolitical state. Within such a prescriptive modelof social change are the fields that have come to be called ‘Islamic economics’,‘Islamic finance’, and also a distant cry of ‘Islamic science’ (Nasr, 1987; criticisedby Sardar, 1984, 1988). This group has for all times marked the wishes and designsof the elitist Muslims in their claim for the Islamic law, the shari’ah. Yet for instance,the phenomenal rise of Islamic banking was totally based on the motivation of richshareholders’ in the first place. It does not carry a stakeholders’model of developmentchange (Ahmad, 2017).

The continued imitation of the shareholder model from mainstream economicand finance perspectives can be understood by the underlying trend in the Islamicbanking Finance/Deposit ratio (FDR). Statistical facts show that FDR has exceeded100 per cent ratio. The obvious inference that can be drawn from this trend is thatrich shareholders finance in excess of the 100 per cent ratiothan what is done bycommon depositors. Thus Islamic banks are made up of privileged rich shareholders’funds. A shari’ah misunderstanding of such self-benefitting shareholders’ interestthrough Islamic banks and financial institutions over the years could not present atrue and practising worldview of Islamic economics, Islamic finance, and Islamicbanking. A true Islamic intellectual background and its institutionalism could notcontribute anything valuable by theory and practice to the world of learning andapplication. Only financial growth mattered as anything to the so-called ‘Islamicsocial and economic’ amplification. The prevailing subservience of such Islamicinstitutions to a confused understanding of the relationship between Islam and thecivil order of capitalism has given rise to a failed experiment on Islam otherwise tobe as a resilient world-system (Rodinson, 1973).

Such an unsettled comprehension of Islamic transformation within the MuslimWorld has caused problem of lack of understanding the precept of thewellbeing crite-rion and its implications on human development and social change. In this respect,we can examine the following problem of the lack of well-definition of the wellbeingcriterion in the global Muslim fold.

118 6 The Meso-Economics of the Wellbeing Criterion

Failed Understanding of the Wellbeing Conceptin the Muslim World

In the present state ofMuslimWorld development, particularly of theMiddleEast, theworld noted the inner dynamics of the Arab Spring as a violent opposition betweenthe above-mentioned three shapes of the political economy of change (Al-Azm,Chap. 12, 2014; Choudhury, 2011a). Nowwith the eruption of ISIS under theMuslimSalafist/Wahabi movement, this violent event is seen to be marking the future direc-tions of change in one way or the other in the Middle East Muslim countries andelsewhere.

Thus while the resource and commodity capabilities exist in the nations andpeople at large in the MuslimWorld to determine its future politico-economic trendsin secularism or Islam, yet the question of the functioning of such commoditychoices to realize the shape of the political economy of destined ownership andself-determination remains unresolved. The enabling bundle of diverse but opposingpotentiality in human development and social wellbeing deepens the problems ofthe CF approach in the wellbeing concept. The question then remains: Can coexis-tence arise from the continuing contest between the three opposite groups and theirdiscontents in the Muslim World?

Objective

The objective of this chapter is to develop a model of wellbeing that will establishthe foundation of development study and political economy on the epistemic basisof unity of knowledge. We raise the questions: Can secularism and the competingand opposing views of politico-economic approach to Muslim idea of developmentprovide the needed epistemic model of unity of knowledge for the wellbeing crite-rion? What other prospect exists that can offer an epistemic alternative that canexplain wellbeing in terms of unity of knowledge between the variables of CF in thewellbeing function? Can such an alternative approach to a greater depth of meaningof wellbeing and human development in the presence of CF offer an analytical andpolicy-theoretic worldview as a universal and unique contribution to global intel-lection in socio-scientific inquiry? What would be the features of such an analyticalmodel in relationship to its methodological and applied worldview?

Literature Review

Other than the work of Amartya Sen on the concept of wellbeing differently from thetraditional neoclassical and social choice concepts of welfare function, not much hasbeen done on an analytical development of the theory of wellbeing. Recently there

Literature Review 119

was awork byBinder (2010) on an evolutionary theory of welfare with dynamic pref-erences that can address learning and sustainability. In the field of Islamic economicsthere is the solitary work by Naqvi (2003). But this writing can be critiqued onsubstantive analytical grounds.

A Critical Review of Sen’s CF-Theory of Wellbeing

A critique of Sen’s and other contributions to the theory of wellbeing in respect ofCF and human development follows. This author then further develops his owncontribution to wellbeing theory in the perspective of the episteme of unity ofknowledge.

Sen’s CF-theory is a monumental contribution to the theory and practice ofeconomic development. Yet scholarship is like the tree that succours the environmentin its stately growth as it rises to splendour. There always remains in it the vigourto span into richer branches with life-inducing effects. So also there is the fecundpossibility in Sen’s wellbeing theory of CF for deeper epistemological investigationbased on unity of knowledge that is derived from beyond mere human-centered andindividual-centered meaning of CF in wellbeing (Sen 2003).

Besides, in our example given above regarding the lack of definition of wellbeingin the confused state of the future of the Muslim World in its deluge of misdirectedparadigms, the group-specific self-seeking individuated objectives in such separablegroupings bedevil the use of the holistic wellbeing theory, and thereby the theory ofCF. On the inherent premise of rationalism leading into aspects of human-centeredrationality axioms Sen’s theory of wellbeing in CF and human development and theMuslim perspective can thereby be argued not to be premised in a methodologicalworldview of universality and uniqueness implicating the concept and practice ofthe wellbeing criterion.

An inconsistency problem is found to be as deeply rooted in Sen’s theory withrespect to the field of political economy of development; as has been the case of theimpossibility theorem and the axiom of irrelevant preferences in Arrow’s theory ofsocial choice. A dictatorial situation is the natural necessity of either the wellbeing orthe welfare approaches when transitivity of choice otherwise fails to determine theordering of CF and the social welfare function (Sen, 1977). Within this failure of thetransitivity axiom of economic rationality explained by a view of CF-theory, the exis-tence of irrelevant preferences must necessarily annul inclusive social preferences.Inclusive social preferences therefore, cannot be defined by the utilitarian additionof independent individual preferences and utility functions of optimal utilitarianchoices.

Indeed, Sen’s (1970) negation of the axiom of transitivity axiom as the ideal of the‘rational fool’ means much in terms of a reasoned rejection of neoclassical idealism.But the continued existence of a utilitarian pattern of aggregation of individual pref-erences, choices, and utilities based on themultidimensional interplay between capa-bility and functioning results in idealized characterization of the wellbeing criterion.

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In the formation of social contract such additive utilitarian type utilities, and therebycapabilities and functioning result in idealized good society as was once conceivedby Aristotle (Aristotle trans. Welldon, 1987). In terms of this concept of ethicalityindividually optimized, an idealized good society is construed by the additive utilitiesof utilitarian ethics (Quinton, 1989).

Such a social constructwith individual centric concept ofwellbeing is also found inRawls’ (1971) concept of ‘primaries’ describing a bundle of Utopian impossibilities(Wolff, 1977). Now with indeterminacy abiding on opposite sides of the criticism onidealismof socialwelfare criterion of social choice andneoclassical economic theory;and yet again a multidimensional explanation of interaction between capability andfunctioning of individual human-centered wellbeing, no precise characterization ofthe human development problem has been possible.

Complexmultidimensional interaction between capability and functioning cannotbe explained by utilitarian aggregation of optimal utilities of individuals. As wellas the utilitarian objective of welfare and wellbeing cannot be of the optimal andsteady-state nature in the midst of evolutionary learning processes of a probabilisticworld-system and its problem defining variables. Rather, complex social aggrega-tion of preferences and choices in multidimensional state of interaction take up non-linear forms of dynamic learning and evolutionary forms. They are not governedby individual human-centricity as of Sen’s wellbeing criterion. In all of the ethi-cally induced welfare and wellbeing theories, despite much effort in substantiatingthe indispensable role of ethics in social inclusiveness, the ethical parameter couldnot be enumerated in an analytical form of any economic function to derive policy-theoretic inferences on attaining the wellbeing criterion. Morality and ethics, andthereby consciousness enumerated as degrees of embedding in systemic worldviewof physicalism and non-physicalism domains, have forever remained exogenous vari-ables in a comprehensive understanding of socialwellbeing taken in itswider sense ofmoral and ethical valuation (Myrdal, 1957). Yet such a substantive formalism invokesa deep import. That is endogenous treatment of morality and ethics in social choiceand wellbeing are absolutely unavoidable in formalizing the wellbeing criterion andits development consequences in a probabilistic evolutionary learning socio-scientificworld-system.

Problems of Islamic Wellbeing Formalism

The so-called field of ‘Islamic’ economics and finance has suffered its deepest cutof all by being unable and only philosophically rationalistic (Qadri, 1990) in itsunderstanding of the critical issues that this field primarily ought to explain. Theseare the precepts of Islamic monotheism as primal ontology, and the premise of socialjustice, fairness, equality, compassion, and likewise the good things of life as choicesthatmost ‘Islamic’writerswould like to center around the cardinal lawofmonotheism(Tawhid).

Problems of Islamic Wellbeing Formalism 121

Naqvi (op cit) tried to configure his idea of ‘Islamic’ axiomatic worldview uponsuch self-concocted principles. Yet he treated them as ‘basis’ vector (Gel’fand, 1961)for describing the ‘Islamic’axiomatic base. Serious questions remain: If Naqvi’saxioms form a ‘basis’ vector then every element of this basis is independent ofall other ones. Consequently, the critical ethical elements independently affect theworld-systems, such as economics, finance, science, society; and the variables of thewellbeing function. Such an exogenous effect of the ‘basis’ vector leaves the Islamicworld-system dysfunctional in the sense of systemic interaction, unity of knowledge,and thus learning and creative evolution according to the primal ontology of Islamicmonotheism as the Law and its organic construction of the generality and particularsof the world-system. The framework of inter-causal unity of being and becomingbetween the variables representing good things of life in the wellbeing function isdenied.

The other major problem with the selected enumeration of edicts of morality,ethics, and values in Islamic identification is that these are done as individuallydesired. In fact, there is no limit to the full extent of such enumeration of valuesthat one can derive from the Qur’an as the ontological foundation of the Islamicworldview. Therefore the question is, which one of these values can be relied uponto be authentic? There is no convergence to a standardized set of values1 that canbe pointed out. Thereby, the principles of uniqueness and universality cannot resultfrom Naqvi’s axioms in the midst of random enumeration of values.

In so many other works of ethics and values in Islamic context (Chapra,1985), the use of the terminology ‘welfare’ as opposed to ‘wellbeing’ in analyticalsense belonging to disparate epistemic reasoning, has permanently and erroneouslyhindered any creatively erudite contribution to the world of learning. Thereby, anyeconomic conception so arising has continued on in the flawed framework of neoclas-sical utilitarianism or absence of analytical theory in so-called ‘Islamic’ socio-scientific inquiry. Facing such a gap in scholarly maturity, ‘Islamic’ economics couldnot therefore erect a methodological worldview. ‘Islamic’ economics never couldderive its methodological emergence from the epistemic centricity of Tawhid in a

1As an example the problematic set of Islamic value enumeration for reasons asmentioned above areshown as a basis vector by Naqvi in terms of (i) Unity; (2) Equilibrium (al-adlwa al-ihsan); (3) Freewill (ikhtiyar); and (4) Responsibility (fard). The problem of enumeration, randomness of limitingprincipal axioms ofmorality, ethics, and values; and of the disability of such basis vectors to describethe organically learning and unifying world-system in its generality and particulars can be readilynoted. Tawhid, which is the primal ontology of any and everything that is truly Islamic vis-à-vis theQur’an and the Prophetic guidance (Sunnah) ought to govern and be learned by deepening discourse.Such an experience leads into increasingly evolutionary learning processes across the generalityand particulars of the world-system in its multidimensional issues and problems explained by theepisteme of unity of knowledge. Yet by one’s own arbitrary self-choice of Tawhid as a variable ofNaqvi’s basis vector mentioned above, Tawhid loses the attribute of its evolutionary epistemologyrelated to Tawhid, self, world, and the Hereafter. Consequently, all meanings of consciousness(phenomenology) of meta-science are lost in respect of the intrinsic organic inter-causal relationsthat must exist between all the attributes. There is no end to the enumeration of such attributes.

122 6 The Meso-Economics of the Wellbeing Criterion

description of a pervasively evolutionary learning world-systemwith complementar-ities signifying unity of knowledge as this emanates from the Tawhidi (monotheistic)methodological worldview.

Yet the same kind of analytical consequences can be read off the special case ofcomplementarities between capability and functioning with multidimensional devel-opment possibilities. When the principle of sustainability in development ethics canbe explained in such complementary ways, the emergent theory would present anovel epistemic inquiry premised on unity of knowledge. The emergent model wouldbe explained together with the contrary evaluation of the wellbeing criterion withmarginalist trade-off between states of capabilities and functioning based on bundlesof commodities. In the human-centered reasoning of Sen’s CF-theory otherwise,marginalism is possible.

In the end, although somuch desired, ‘Islamic’ economic and social inquiry failedto render a unique and universal theory of morality, ethics, and values. Contrarily, themethodological worldview of unity of knowledge presented in this chapter explainsendogenous yet discoverable, inferential, and attainable simulated states of comple-mentarity. Such immanent complementary and participativestates of organic unityof being and becoming convey the foundational ontology of unity of knowledgeby the methodology of Tawhidi (monotheistic) organic inter-causal relations.Such aphenomenon is explained by the primal ontology of Tawhid (monotheistic oneness)in terms of its functioning in the multidimensional world-system, and in relationshipwith the Closure Event of the Hereafter.

The Hereafter in Islamic terminology is referred to as the Great Event in termsof the Closure of evolutionary learning in an unbounded knowledge-space. Theultimate answer to the question of unity of knowledge in terms of endogenouslyembedded and extendible relations by organic complementarities between multi-variate selections of life-fulfillment possibilities has remained unknown to ‘Islamic’economists. Nonetheless, such is the methodological worldview that continues onto be searched for. Examples of such dynamic regeneration by functional transfor-mations in commodity space in economics are given by the works of Sraffa (1960)and endogenous growth theory of Romer (1986), and to an extent by Sen as well inhis transformed form of the wellbeing theory by means of needed complementaritiesbetween capabilities and functioning to attain sustainable development.

Space–Time Concept of Evolutionary Wellbeingin the Literature

Evolution almost exclusively in all of socio-scientific inquiry in western perspec-tive has been understood in the space–time context (Hawking & Mlodinow, 2010).Thereby, in the case of a theory of evolutionary wellbeing/welfare function timeas been used as the factor causing change and continuity. In the same space–timeconcept, space too is the consequence of every form of cognition and observation

Space–Time Concept of Evolutionary Wellbeing in the Literature 123

occurring in time. Einstein (1954) referred to such a concept of space with matterwithin the space–time concept that cannot be empty of materiality in the sense ofphysicalism. This sense of the universe being limited within physicalist materialityraises the question regarding the ultimate meaning of life after death for and withwhich the ponderable mind raises the greatness of life for a life beyond life (Here-after) in non-physicalist real space.2 Wellbeing denotes the totality of blissful purposewhose deontological consequences extend from life to life and beyond life. Thebalance, purpose, and coexistence of living experience are the attributes of well-being in its conception of extension beyond time (temporality) and space (cognitionand materiality), thus consciousness (Kaku, 2015).

Contrarily, the concept of social welfare has always been contained withinprecincts of utilitarian hedonism despite criticism of some of its assumptions ofrational choice (Kahneman & Tversky, 1979; Kahneman 1999). Welfare functionhas been studied in the macroeconomic framework by Gordon (1967). Yet macroe-conomics does not yield any behavioural and reasoned dynamics of morality andethics in its constructs. Besides, the neoclassical utilitarianism of welfare concept insocial choice theory could not liberate itself from the roots of civil libertarianism.Civil libertarianism is additive utilitarianism of neo-liberalism kind.Wellbeing func-tion on the other hand is construed as a criterion of individual happiness. It is therebyof the microeconomic essence.

In either the microeconomic or macroeconomic conceptions of attaining poten-tiality, such as increasing consumption of bundles of diverse commodities as fetish,there remains the limiting materiality of such criteria within the space–time concept.Thereby, the premise of such space–time concept of wellbeing and welfare appearsand is constrained by the episteme of rationalism. From this primal rationalist foun-dation of moral, ethical, individualist, and social economic reasoning the conceptof economic rationality and rational choice assumes its specific definition of transi-tivity of choices, full-information, and perpetual competition behaviour caused byresource scarcity.

The concept of evolutionary wellbeing under condition of continuity and processis aligned to space–time dynamics alone. Thereby, the changing nature of well-being, preferences, choices, and dialectical processes has no roots in the epistemicprinciple of knowledge as the foundational determinant of inter-causal evolution byknowledge-induced change, continuity, and sustainability. Thus, whether in the atemporal case, as of neoclassicism and utilitarianism, or over time as in the intertem-poral case, the nature of the wellbeing criterion remains unchanged. It is to rein-force the fundamental nature of behaviour, choices, and the assumption of resourcescarcity that determine the material and cognitive attributes of the wellbeing/welfarecriterion. The understanding of the evolutionary learning process-oriented method-ological worldview and continuum is impossible in the sheer space–time concept ofthe rationalist episteme.

2Thomas Gray, 1870–71. Elegy Written in a Country Churchyard:“The paths of glory lead but to the grave”.

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Concept of the Wellbeing Function in Space–time Structureof Economic Reasoning

In formal expression the evolutionary wellbeing function in space–time concept isdefined by the expression,

W(u0(x, t)) =∫ T

0Wt(ut(x, t))∗ exp(−δ(t))dt; (6.1)

Bold symbols denote vector. The present-valuation formula of discounted(discount factor δ(t)) future wellbeing functions being dependent on time distributedutilities (ut(x,t)) is an example of such a wellbeing function.

Contrary to the time discounted definition of the wellbeing function, there is theterminal valuation of future independently distributedwellbeing functions. This takesthe form,

W0−T,x(u(x, t)) = �Ta �(xi)W(u(x, t)), all variables being time − dependent.

(6.2)

The role of time in both expressions (6.1) and (6.2) in space–time structureof valuation of wellbeing is to read the shape of the utility function in terms of{x(t)}-consumption variables that define the time distributed utility functions. Timeis thereby a reader not a factor of states of the wellbeing functions and their space–time distributed change in the two cases. Besides, the {W(u(x,t))}-functions must bewell-determined over time to be evaluated. But this is an impossible task of futuristicforms, unless rational expectation hypothesis attributes of adaptation in informationflow are assigned exogenously (Minford & Peel, 1983).

In evolutionary learning processes across knowledge, space, and time dimen-sions simulation remains continuous and abundant. Consequently, the probabilisticexpected value of the wellbeing functions in terms of the inner variables in expres-sion (6.1) and (6.2) remain indeterminate by complexity. The problem of evaluationof wellbeing remains unresolved in continuous simulacra of possible alternatives atvarious points of time. This is a permanent problem of simulated valuation in thespace–time structure of the wellbeing criterion with complexity under evolutionarylearning processes.

In the above characteristics of the intertemporal wellbeing functions two otherproblems arise that annul all ethical relevance in intertemporal allocationof resources.Firstly, the nature of marginal substitution between competing alternatives of {x(t)}prevails, even if any of these (e.g. goods) remains constant in respect of the other,which is variable (e.g. money). Secondly, the neoclassical theorem of one-to-onecorrespondence between utilities and preferences implies that, all futuristic natureof constant or time-adaptive hedonic utilities will simultaneously keep given prefer-ences to be fixed or adaptive of the hedonic nature. Evolutionary learning processesover simulacra of evaluation of wellbeing functions, subject to their inter-variable

Concept of the Wellbeing Function in Space–time … 125

causal relations, thereby do not exist in the space–time structure of decision-makingand behavioural dynamics of mainstream economic theory.

The Concept of Evolutionary Wellbeing in {Knowledge,Space, Time} Dimensions

Now abandoning the concept of wellbeing criterion of the rationalist human-centeredidea of morality and ethics in space–time concept of development requires an epis-temic shift that is solely premised on unity of knowledge (Wilson, 1998). The simu-lated world in its ontological generality from which is derived the particulars offunctional ontology as designs of a transformed world-system yields the method-ological and applied form of the wellbeing criterion in the knowledge, space, andtime dimensions. This idea is of a singularly revolutionary kind in the history ofsocio-scientific thought (Kuhn, 1970).3

The resulting conception of the wellbeing criterion that is premised on the primalontology of unity of knowledge as law, as in the monotheistic systemic meaning ofoneness (Tawhid) by organic interrelations, brings out its applications at each step ofthe model formalization. In this way, the methodology of the unique and universallaw of unity of knowledge premised on the primal ontology of monotheistic onenessis shown to apply cognitively at every point of the theory of wellbeing criterion, itsformulation, and its application all along the continuity of the knowledge, space,and time trajectory. Likewise, the emergent wellbeing criterion, which is premisedon the methodology and application of the primal ontology of unity of knowledgefollowed by the derived epistemological and phenomenological constructs, is alsocapable of explaining the rationalistic epistemological origin and nature of the earliermainstream wellbeing concepts of space–time genre.

Amartya Sen’s Wellbeing Form in CF-Theory in Termsof Pervasive Complementarities

So far this chapter has argued that, only Amartya Sen’s theory of wellbeing in humandevelopment in respect of capabilities, commodities and functioning gives the possi-bility of pervasive complementarities between C & F. But CF-theory also explainsthe case ofmarginal substitution betweenC and F in the adverse condition of neoclas-sical postulate of rationality in human development. Sen also points out that,adversedevelopment problems occur when there exists conflict between opposites (marginalrate of substitution) as of C and F. Good alternatives for human development and

3Thomas Kuhn (1970, p. 152) writes: “… scientific revolutions are here taken to be those non-cumulative developmental episodes in which an older paradigm is replaced in whole or in part byan incompatible new one”.

126 6 The Meso-Economics of the Wellbeing Criterion

wellbeing are to be found in the case of sustained complementary relations betweenC and F.

However, the critical problems with Sen’s CF-theory are firstly, its macroeco-nomic nature. Consequently, no easy method of aggregation of individual wellbeing,non-linear though, has been suggested to invoke social and economic policy impli-cations and social choices of bundles of commodities that together would enablecomplementarities between C and F for the better perspective of sustainable well-being. Secondly, the continued dependence on human rationalism as epistemologydevelops random scenarios of relations between C and F in the wellbeing function.The result of such rationalist epistemological dependence deprives CF-theory insearching, discovering, and sustaining the golden prescription of complementaritiesby unity of knowledge. Such possibilities are sustained in continuum by the choicesof bundles of goods and their use in attaining complementary CF-scenarios alongthe path of evolutionary learning processes. The random choices of commodities andutilities based on the epistemeof rationalismas earlier explained by expression (2) failto direct wellbeing and development along the direction of an organismic historicalpath of sustained continuum. Such a path would otherwise result in methodologicaluniversality, uniqueness, and consciously applied futures of reconstructiveworldviewof unity of knowledge. The emergence of the revolutionary socio-scientific shift at theontological, epistemological, and phenomenological levels of knowledge embeddingin variables are not to be found in all of mainstream economic reasoning—indeedin all of science. The entrenchment of the rationalist idea of heteronomy persists(Bhaskar, 2002).4

The New Methodological Worldview of Wellbeingand Development Future with the Episteme of Unityof Knowledge

Figure 6.1 outlines the universal and generalized ontological design of socio-economic development. Within the stated methodological worldview the uniqueobjective criterion of wellbeing and its analytical properties pervade, based on theemergent episteme of moral and ethical sustainability across inter-relational historyof the future, as premised on unity of knowledge concerning events.

Events are described along the evolutionary learning processes as, E(θ) = E{θ,x(θ), t(θ)}; θ ∈ (�, S) by means of the mapping from the primal ontology � as,� → S {θ}. Thus, {θ} ⊂ S(�). {θ} denotes a set of knowledge-values of unity ofknowledge that is continuously differentiable and evolutionary as learning processesderived from the nature and implied methodology of the derived discursive spaceof action of the primal ontology denoted by S(�). Besides, S(�) ⊂ �. Therefore,

4Bhaskar (2002) wrote on heteronomy: “So long as there is any element of heteronomy, any unful-filled intentionality, any attachment, any fixation within you, your freedom will be to that extentrestricted”.

The New Methodological Worldview of Wellbeing and Development Future … 127

H H

History of con�nuum of events in manifold of moral possibili�es from the Beginning to the End6

0 1 2 3 Recall: 4 5 [ S:( ,S):[{ } {x( )}]t( )= E( )={ ,x( ),t( )} W: W(E( )) con�nuity of IIE processes

Across the manifold of knowledge, space, �me dimensions un�l the Great Event of the Herea�er (inter-systemic Learning processes (IIE) Evalua�on (es�ma�on and simula�on) subject to circular causa�on inter-variable rela�ons:

(intra-systemic interaction, integra�on,evolu�on) xi( ) = fi( ,x( ),t( ); i j=1,2,..,n in x( ) = {x1,x2,..,xn}[ ]

t( ) as �me in con�nuous cogni�ve, measured sense of �me- series or surveys, finally to the quan�ta�ve applica�on of the wellbeing func�on,

= F(x( ),t( ))

)esrevitlum,’gnihtyreve‘.g.e(ytilareneG

Par�cular (economics, society, science)

Fig. 6.1 TSR: The universal and unique grand design of Tawhidi Epistemic Relations inWellbeing

{θ} ⊂ S(�) ⊂ �. Furthermore, because of the continuously sustained evolutionarynature of learning processes {θ} in S(�) ⊂ �, the universe of {θ} is probabilisticin simulacra. Therefore, there exist probability limit points like, θ = plim{θ} acrossHH(θ).

Furthermore, the methodology of organic unity of knowledge derived from theprimal ontological origin, (�, S), reflects itself universally and continuously over thesustained event-space. Therefore, the knowledge variable denoted by ‘θ’ is the resultof inter-causal learning by organic interrelations between the ‘θ’-values and theirembedded socio-scientific variables. The functions of such variables, f(x(θ)), can bevectors, matrixes, tensors and cognitive manifolds. The simulacra of evolutionaryprocesses in continuum of events are sustained over time along bundles of varioustrajectories {HH(θ)}.

Time is the creation of the primordial instantiation by primal ontology, and cogni-tion, psychology, and occurrence of events. The result of such dynamics occurringvia interaction (discourse) leading to integration (consensus), leading to evolution(sustainability and continuity over the manifold denoted by {θ, x(θ), t(θ)}), marksevery point of History, HH(θ) and its prototypes in Fig. 6.1.

128 6 The Meso-Economics of the Wellbeing Criterion

The conjoint properties of the event-space over the historical trajectory ofevolutionary learning processes yield the following results:

E(θ) = {θ, x(θ), t(θ)} →w W(θ, x(θ), t(θ)). (6.3)

W(..) is the conceptual, not the quantitative form of the wellbeing function. Thewellbeing criterion is nowexplained in terms of degrees of complementarities (partic-ipation) between the knowledge-induced variables as derived discursively from theprimal ontological premise and continued on functionally across simulated events inknowledge, space, and time dimensions.

Because W(..)[θ] is continuously differentiable (because of complementaryconnectivity), therefore by the implicit function theorem of differential calculus(Baldani et al., 2005) we can write W(..)[θ] in a simple applicable form. Besides, theproperty of continuous differentiability of W(.) and its multiple transforms impliesexistence of non-singular Jacobian matrix (Hogg & Craig, 1965). Such a simplederived form of the wellbeing function for empirical application is,

θ = F(x(θ), t(θ)) (6.4)

This is the quantitative form of the wellbeing function. Because by the method-ology of unity of knowledge based on the monotheistic ontological law to which ‘θ’belongs, therefore, expression (6.4) measures in applied sense the degree to whichcomplementarities exist or can be attained by simulation between the variables ‘x(θ)’signifying the good things of life. Such good things of life are the life-fulfillmentsustainable ones in themoral, ethical, and basic needs of life.5 The degrees of comple-mentarities signifying degrees of unity of knowledge between the variables are esti-mated and simulated in terms of the coefficients of the circular causation relationsbetween the variables (Choudhury, 2016). Such a system of organic relations wasreferred to by Myrdal (Toner, 1999).

Expressions (6.3) and (6.4) have procedural resemblance with Sen’s wellbeingconfiguration in terms of the complementarities between commodity bundles withcapabilities and functioning. To show this fact, we write x(θ) in terms of its mono-tonic positive transformation by inducing C and F to the commodity bundles as func-tional transforms, i.e. x(θ) ⇔ (C•F)(x(θ)). Such a transformation is consistent withthe sustainable continuously differentiable properties of interactive, integrative, andevolutionary (IIE) learning processes of history and their complementarities acrosssimulacra of possibilities across life-fulfillment development regimes. The differ-ence between the two concepts of the wellbeing criterion is in the epistemic origin of‘θ’-values. In Sen’s case this value belongs purely to human-centered origin of ratio-nalism. In the case of the ontological law ofmonotheistic organic unity of knowledge,wellbeing is morally centered into the premise of Tawhidi unity of knowledge.

5Ghazali referred to such life-fulfillment possibilities as (trans. Karim, n.d.). Shatibi referred tothem in terms of essentials (dururiyath), comforts (hajiyath), and refinements (tahsaniyath) (Ashur,2013). In recent times, Rawls referred to them as primaries.

The New Methodological Worldview of Wellbeing and Development Future … 129

This difference yields a vast degree of distinctive consequences in economic andsocial theories. See Choudhury (2011b) for details. Yet similar to Sen’s CF-theory,pervasive complementarities or reconstruction of existing marginalism between x(θ)⇔ (C•F)(x(θ)) conveying varying degrees of possible complementarities can both beanswered by expressions (6.3) and (6.4). For realizing such regimes of developmentcomplementarities the primal ontological law of monotheistic unity of knowledgehas substantive academic directions to offer.

Examples here are of the primacy of social justice as balance between the cognitiveandmaterial accessibility of distribution and ownership by all in the Islamic meaningof wellbeing criterion. Sen’s CF-theory does not have any such prescription to offerthat can be upheld as the moral and ethical origin of development regime. In Sen’sCF-theory morality and ethics are consequential, not endogenously driven by inter-variable embedding.

Figure 6.1 of the monotheistic primal ontological law of unity of knowledge asthe universal and generalized wellbeing theory of and its particulars in the world-system is now given below. This model is called the Tawhidi String Relations (TSR)of the universal and unique objective model of unity of knowledge in everything asdeclared by the Qur’an as the Primal Ontological Law of the multiverse.

We note from Fig. 6.1 the various building blocks of the monotheistic ontologicalorigin of unity of knowledge as indicated numerically in 0–5. The important point tounderstand is the inter-causal feedback between the methodological stages (0–1) asprimal ontology and epistemology, respectively.These primal elements form thebasisof the methodological nature of the cognitive and experiential world-system underunity of knowledge. The result of such a methodological impact is the description ofthe generality and particulars of the world-system under study (ethical, economic,and social issues). This stage is denoted by ‘2′. Hence stage 2 leading into stage 4marks the functional ontology as description of the objectified goal of the wellbeingcriterion. The episteme of unity of knowledge is thus methodologically integratedwith the mind and matter universe in knowledge, space, and time dimensions. Therecalling of the primal ontology repeats the processes along evolutionary learningHistory over time. At the end thereby, the primal ontology (Tawhid as the monothe-istic law), epistemology (derivation of knowledge), and phenomenology (abstract andmeasured wellbeing in terms of degrees of intrinsic and constructed consciousness‘θ’) are completed. Sustained continuity of knowledge-induced events proceeds onby evolutionary learning over time (shown by encircling of the historistic trajectory).

Contrasting Tawhidi Epistemic Methodological Worldviewto Neoclassical ‘Islamic’ Economics

We now continue on to contrast the so-called neoclassical ‘Islamic’-economic ideasand applications with special reference to the wellbeing criterion. Mahomedy (2017)has incisively critiqued that ‘Islamic’ economics and its off shoots have not arisen

130 6 The Meso-Economics of the Wellbeing Criterion

from any epistemological grounds. As a result, no scientific methodological world-viewarising from the ontological origin has coloured this undevelopedfield. ‘Islamic’economics has remained an imitation of the mainstream economic ideas.

In reference to Fig. 6.1, the stages 0–1, and consequently the entire epistemicinfluence in the definition and construction of the stages 1–4, and thereby beyondinto evolutionary continuity have not established the methodological worldview, asof the ontological law of Tawhid (Choudhury & Rahim, 2016). Instead of origi-nating from the most foundational origin of the Tawhidi ontological law, ‘Islamic’economics relies on the human-concocted juristic interpretations (fiqh and fatawa)derived in a dissociate way of understanding the shari’ah as law (Hallaq, 2990).‘Islamic’ economists refer to such reliance on the shari’ah rules as ‘shari’ah- compli-ance’. They also invoke the traditional meanings of the purpose and objective of theshari’ah, referred to as maqasid as-shari’ah, not realizing that in all these terminolo-gies true ontological law of Islam is Tawhid, not maqasid as-shari’ah. In fact, thereare methodological errors of economic valuation in all aspects of the shari’ah finan-cial contracts. They contradict the episteme of unity of knowledge of the Tawhidiworldview.6

Therefore, ‘Islamic’ economics has not been able to give a precise meaning to theconcept of wellbeing conveying the episteme of unity of monotheistic knowledge inthe methodological sense of organic complementarities. The terminology of well-being has been confused with welfare. Consequently, the elements of consciousnessand policy-theoretic implications of organic unity of knowledge conveyed by perva-sive complementarities between the good things of life could not be understood. Theutilitarian perspective of independently distributed utility functions of marginalistcommodities remained entrenched in ‘Islamic’ economic thought. Contrarily, theTawhidi epistemic approach subjects all issues of rule-formation in the context ofthe wellbeing criterion to evolutionary and discursive renewal by continued referralfundamentally to theQur’an and the sunnah (stage 0 in Fig. 6.1) in respect of the epis-temic unity of knowledge. Such discursive evaluations are shown by inter-causalitybetween choices of the complementary kinds of life-fulfillment possibilities.

Empirical Example of Quantitative Estimationof the Wellbeing Criterion

A doctoral thesis by Pratiwi (2015) exemplifies how the wellbeing function can bequantified in reference to its construction according to the Tawhidi Primal Onto-logical reference with ensuing inferences. Pratiwi explains as follows: In a systemview of socioeconomic approach to rural and urban development by Islamic banks,the wellbeing criterion ought to be focused. The wellbeing criterion, W(θ), thus

6Problems of the Shari’ah-compliance idea and maqasid as-Shari’ah center around the issue as tohow debt is terminally retired in the mostly debt-ridden ‘Islamic’ financial instruments. There is noresolution to this question.

Empirical Example of Quantitative Estimation of the Wellbeing Criterion 131

becomes the main goal of the Tawhidi methodological approach. According to theTSRmethodology in unity of knowledge, the wellbeing objective of Islamic banks isderived from meso-economic perspectives. Meso-economics is a theory of the mixof macroeconomic and microeconomic theories. Thereby, the conceptual wellbeingfunction W(θ) is evaluated as follows:

EvaluateW(θ) = f(micro − variables(x), macro − variable(y), t)[θ], (6.5)

Subject to (i,j) circular causation relations,

xi = fi(xj, y, θ, t

)[θ]xi = fi(x, yi, θ, t)[θ]θ = F(x, y, t)[θ].

‘θ’ expressed as the F(..)-function denotes the quantitative ‘similar’ function ofthe wellbeing function W(.) and is derived as an implicit function of ‘θ’.

The empirical form of the wellbeing function is a goal for attaining by Islamicbanks in rural and urban development by means of the Islamic financial instruments,and in the light of the Tawhidi String Relation (TSR) precept of unity of knowledge,takes the following form:

θ-estimation

Overall, it was shown for Indonesian Islamic banks that all variables significantlyimpact long-run θ-functional in ways that are critical of interpretation.

θ = 3.132 + 52.200 ∗ GDPg − 3.299 ∗ POBO − 1.476 ∗ ROA − 4.328 ∗ MMUMKM

[23.8273] [−53.8711a] [−29.2288] [−14.0493](R2 = 0.886, F − Stat = 17.576

)(6.6)

Legend

The natural logarithmic variables are defined:θ is a monotonic transformation of the conceptual form of the Social Wellbeing

Function, W(.) in reference to TSR methodology;GDPg denotes percentage rate of change of the real GDP;POBO = 1/OER, denotes inverse of Operating Expense Ratio (OER). OER is the

percentage value of the operating expense value relative to gross operating income

132 6 The Meso-Economics of the Wellbeing Criterion

value. Hence, 1/OER is the income value generated from unit amount of operatingexpense.

ROA denotes Return on Asset as percentage value of profits on asset value. Thisindicator is another way of measuring business health.

MMUMKM denotes percentage of Mudharabah (profitsharing) and Musharakah(equity participation) as Islamic financing instruments in financing microenterprises,small and medium size enterprises.

Inter-variable circular causation equations were also estimated and inferenceswere derived. The estimated Eq. (6.6) points out that Islamic bank performance interms of each of the variables shown for the rural sector is negative. In terms of theurban sector the coefficient is positive relating wellbeing to real GDP growth rate.Besides, the efficiency category variables (POBO, ROA) are negatively related tothe wellbeing criterion. In terms of the wellbeing criterion of rural sector, there is anegative relationship of the rural oriented variables for microenterprise, small scaleand medium scale development financing by the Islamic instruments of mudarabahand musharakah. The total quantitative form of the wellbeing function shows thatIslamic banks are gaining their economies of scale (increasing returns to scale)by focusing development in the urban sector (shareholders model). This pattern ofIslamic resource allocation in socio-economic development between the urban andrural sectors implies the deepening effect of the neoclassical model of financing anddevelopment, which is contrary to the model of pervasive complementarities (unityof knowledge) in the light of TSR.

Computing Socio-Economic and Islamic Financing Relatedθ-values Over Time

The θ-values are computed for estimation purposes in two steps relating to the statis-tical data: (1) A ranking of each of the variables is done by prorating θ-values onthe assignment of θ = 10 for the best statistical variables choice. The best value isjudged by the most ethical/moral choice of the values of the variables. The choiceis done by each column of the socio-economic variables. (2) The prorated θ-valuesare next averaged across columns. In this way the table comprising all the variablesand θ-values is set up for data used in estimating the θ-functional and the circularcausation equations (not shown) (Table 6.1).

Computing Socio-Economic and Islamic Financing Related … 133

Table 6.1 Statistical data and averaged θ-values, examining the performance of Islamic banks inIndonesia by their rural and urban sector operations on wellbeing, 2005–2014

Time GDP growth ROA 1/BOPO MMUMKM θ

Mar-05 0.020281648 2.20649 1.147219 0.860972449 6.51

Jun-05 0.022290038 1.49047 1.196054 0.816939722 5.33

Sep-05 0.028607637 1.85724 1.184168 0.722502103 4.95

Dec-05 – 0.020315753 1.68309 1.137072 0.748190814 4.02

Mar-06 0.020481287 1.74131 1.089095 0.732029703 5.04

Jun-06 0.020405351 1.65616 1.11299 0.74961741 5.09

Sep-06 0.037730139 1.67299 0.981905 0.755552035 3.59

Dec-06 – 0.018535134 1.80431 0.893997 0.773575532 3.49

Mar-07 0.02046895 2.53146 1.113309 0.759371324 6.36

Jun-07 0.026867703 2.33461 1.156381 0.727229838 5.66

Sep-07 0.037901516 2.14231 1.203621 0.719368963 4.81

Dec-07 – 0.026830962 2.06945 1.212901 0.708486629 4.63

Mar-08 0.024095968 2.58502 1.46416 0.694449954 7.07

Jun-08 0.027682659 2.31967 1.446972 0.760869674 6.72

Sep-08 0.037434953 2.21455 1.429336 0.745890851 5.82

Dec-08 – 0.035736789 1.41687 1.304585 0.72242745 4.09

Mar-09 0.016682592 2.44545 0.944913 0.699556601 5.64

Jun-09 0.02390142 2.16547 1.082132 0.705297828 5.27

Sep-09 0.038764676 1.37588 0.948254 0.7124617 2.79

Dec-09 – 0.023427766 1.48075 0.984987 0.729358372 3.14

Mar-10 0.020427943 2.12535 1.089798 0.755012226 5.70

Jun-10 0.026853396 1.65561 1.087598 0.76961125 4.68

Sep-10 0.033995763 1.76813 1.038197 0.781943873 4.27

Dec-10 – 0.014200406 1.66864 1.154024 0.779331554 4.20

Mar-11 0.016916349 1.97020 1.454321 0.786636094 7.07

Jun-11 0.028165496 1.83985 1.477755 0.786156577 6.24

Sep-11 0.033180865 1.79663 1.467477 0.775623469 5.77

Dec-11 – 0.01470251 1.79007 1.455171 0.772133744 5.35

Mar-12 0.015846008 1.82592 1.600891 0.757858041 7.30

Jun-12 0.028302332 2.04811 1.640729 0.74196632 6.86

Sep-12 0.031907024 2.06743 1.606193 0.725016284 6.46

Dec-12 – 0.014896846 2.13539 1.576906 0.70260978 5.91

Mar-13 0.013931355 2.38559 1.353964 0.702466528 7.12

Jun-13 0.025630537 2.09924 1.361555 0.706878763 6.01

Sep-13 0.030722415 2.04000 1.407148 0.693658968 5.69

(continued)

134 6 The Meso-Economics of the Wellbeing Criterion

Table 6.1 (continued)

Time GDP growth ROA 1/BOPO MMUMKM θ

Dec-13 – 0.014307157 2.00000 1.396939 0.679965238 5.01

Mar-14 0.009160485 1.16000 1.302467 0.681962539 5.44

Jun-14 0.02475797 1.12000 1.476074 0.382820952 3.55

Sep-14 0.030051487 0.97000 1.492889 0.349097023 2.89

Dec-14 – 0.014047347 0.80000 1.509561 0.330347829 2.06

Source Indonesian statistics

Conclusion

This chapter has broken some substantive grounds for further analytical work in thenew and budding field of heterodox economics that defies the neoclassical microeco-nomic andmacroeconomic theories. The heterodox resurgence is to be found in a newsocio-scientific way of understanding the generality and particulars of world-systemin view of a methodological shift into the Islamic ontology of unity of knowledge(Choudhury, 2017). Thereby, by originating the socio-scientific studies from themeta-scientific moral, ethical, and social foundations of the essential requirementsof the new academe, this chapter has opened up a revolutionary methodologicalinvestigation. The consilience of religion and science is a great breakthrough in therevolutionary new comprehension of true reality. This chapter has commenced toshow that an integrated way of understanding the analytical worldview is to incor-porate God (hence the Ontology of Unity of monotheistic law) with the substantivedetails of the whole gamut of socio-scientific inquiry. On this ground (Wilson, 1998op cit, p. 264) writes: “Looked at in proper perspective, God subsumes science,science does not subsume God. … Scientific research is not designed to explore allof the wondrous varieties of human experience. The idea of God in contrast, hasthe capacity to explain everything, not just measurable phenomena, but phenomenapersonally felt and sublimely sensed, including revelation that can be communicatedsolely through spiritual channels.”

By opening up the vista of meta-scientific inquiry, this chapter has shown by thederivation of complementarity dynamics of the social sciences and physical sciencesthat, the concept wellbeing contrary to a misled notion of welfare of neoclassicalwelfare economics and itsmacroeconomic formalism becomes the singular profoundobjective criterion. Science in its physicalist form and the social sciences in their non-physicalist forms are shown thereby not to be independent of the moral, ethical, andsocial elements of the wellbeing criterion. With these characterizations arose waysof attaining and sustaining wellbeing as the objective goal of organizing commodi-ties with capabilities and functioning. In this respect our critique has fanned outinto various comparative and contrasting directions of the literature review. A mostimportant one of these is the study of the immanent Islamic monotheistic worldviewthat opens the multiverse analytical investigation within the framework of unity ofknowledge that emanates from the monotheistic methodological worldview (Tawhid

Conclusion 135

in Islam) and applies it to the generality and particulars of socio-scientific details.By it both the contrasting theories and its own theory of multidimensional unity ofbeing and becoming can be explained and evaluated. This gives rise to the conceptof the universal and unique theory of ‘everything’ (Barrow, 1991).

Finally, the conceptual and the empirical work based on the true Islamic Onto-logical Law of monotheistic unity of knowledge as methodological origination ofthought have shown the prevailing approach not to legitimate all Islamic instrumentsas they are interpreted under the shari’ah. In applied reality these segregated rules donot yield congenial development financing results with wellbeing effects. Likewise,the ethical and social implications of such segregated treatment of various shari’ahfinancing instruments, institutions, and rules do not provide acceptable socially inclu-sive and holistic results. These results otherwise are to be found in the domain ofthe true Islamic monotheistic ontological law of unity of knowledge, called Tawhid.The appropriate ground of analytical investigation is the meso-theory of integratingmicroeconomics ofmacroeconomics (Ng, 1986;Dopfer andPotts, 2008). This theoryis formulated by the interactive, integrative, and evolutionary method of aggrega-tion of underlying dynamic preferences. Such preferences are primarily formed anddriven by the precept of unity of knowledge as the monotheistic methodologicalgroundwork.

This contrary aspect of the use of shari’ah has been incisively pointed out byRahman (see Hallaq, op cit, p. 527): “Rahman takes strong exception to traditionallegal theory and its authors, blaming them for a fragmented view of the relevanttexts. Both the legal theorists and the exegetes treated the Qur’an and the Sunnaatomistically, approaching verses and individual hadiths as independent units ofanalysis, The lack of an integrated view of the sources was thus responsible forthe absence of a worldview that is cohesive and meaningful for life as a whole.”This chapter has upheld this view in its Tawhidi methodological development of theWellbeing Criterion in reference to the universality and uniqueness of the epistemeof unity of knowledge.

Appendix: The IIE-Feature of Wellbeing Criterionas Extension of Roger Penrose’s Complexly Inter-ConnectedTriangle (Octagon) by the Methodology of Organic Unityof Knowledge (Tawhid) across ‘Everything’

Here is Roger Penrose’s (Oxford University Theoretical Physics & Mathematics)triangle of interconnected relations in explaining universal entirety—‘everything’ indiverse multiverses. Yet, the continuity of linkages in Penrose Triangle (Octagon)does not make it truly an “object of impossibility in its purest form” in respectof our multiverse wellbeing evaluation problem. This latter form of simplificationof Penrose’s Triangle (Octagon) is our simplified interpretation of the immenselycomplex entanglement of organic interrelations that map ‘everything’, large, middle-sized, and small into simplified enumerations.

136 6 The Meso-Economics of the Wellbeing Criterion

Fig. A6.1 ExtendingPenrose’s triangle (octagon)by the formal methodologyof unity of knowledge ofcompounded evaluation ofthe wellbeing objectivecriteria

In this context of the fullest systemic organic interrelations our present workhas explained such organic interrelations in terms of evaluation of wellbeing as themost singular and profound objective criterion of goodness regarding evaluation of‘everything’. Thereby, all issues and problems are cast in terms of the circular causa-tion organic relations between the IIE-learning multidisciplinary variates concerningdiverse parts of the evolutionary multiverse problems and issues.

The conversion of the Penrose inter-causal complexity is profoundly simplifiedin our study by the evaluation methodology embodying the wellbeing function withexpanding plethora of multivariates as complexity increases. Penrose’s triangularinterconnectivity explains the inter-multivariate circular causation relations. Theevolutionary learning nature of the ever-expanding IIE-learning sustained by organiccirculatory causation represents the composite order of Penrose’s Triangle (Octagon)by means of the compounded wellbeing indexes of diverse problems and issues ofmultiverses.

The resulting problem of systemic resolution concerning IIE-learning across‘everything’ provides an immense degree of simplified resolution of complexity ofPenrose’s inexplicable Triangle (Octagon). Such a simplification emanates from theprimal ontology of unity of knowledge and is explained by embedding of circularcausation endogenous multivariate organic relations in the formalism of TawhidiString Relations (explained earlier). The inherent methodology establishes the corre-sponding resolution of Penrose’s inexplicable complex Triangle by the methods ofmathematics and statistics formalized in the framework of the configured universein the multiverse substantiation with continua of system-wise IIE-learning withoutany expansionary end.

There is one more feature of the wellbeing criterion with its multivariate inter-causality that is limiting in Penrose Triangle. This is the absence of inter-causal link-

Appendix: The IIE-Feature of Wellbeing Criterion as Extension … 137

ages between the nodes of the sides of PenroseTriangle.Yet this feature ofmost exten-sive and ever-evolutionary learning by multivariate inter-causality by their endoge-nous inter-relations remains the permanent nature of the wellbeing objective crite-rion. Consequently, the resulting complexity and non-linearity though relenting tosimplification of resolution in the wellbeing criterion of the vastest extant of comple-mentary inter-connectivity becomes an IIE-sphere. This is an extended reformationof Penrose Octagon (Fig. A6.1).

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Chapter 7Imaging the Imaginary Eventsin Evolutionary Learning Trajectoriesof Wellbeing

Abstract Wellbeing can be a subjective functional criterion caused by imagined hurtand benefit in an otherwise pure and real exchange economy, despite with dynamicpreferences aggregating the endogenous inter-variable causality of microeconomicbehavioural nature to aggregate preference system. I refrain from calling such anaggregation as macroeconomic phenomenon, or even as microeconomic foundationofmacroeconomics because of the persistent problem of aggregation and the absenceof behavioural representation in macroeconomic theory. Thus a mesoeconomics asmeso-science approach to investigate the aggregative nature and logic of dynamicpreferences is pertinent to the underlying analytical study.

Objective

The objective of this chapter is to draw an impossible wedge for imaginary prefer-ences, variables, and circular causation relations between real and such imaginarycalculus of benefits and hurt, pleasure and pain. The idea of ‘imaginary’ is endowedin wellbeing functional formalism by the appearance of the number i = √−1 and allits related transformations, such as (a+ b · i) and (1+ i), with a and b being arbitrarynon-zero constants. Such mathematical transformations in the wellbeing functionmake all events along the evolutionary learning trajectories to be real, configured,continuously differentiable and interpretable for analytical, predictive, and inferen-tial purposes. The phenomenological implication of such real-world inference is thateconomics and science in particular do not deal with imaginary events.

In fact, imaginary events do not exist as they are automatically transformed bytheir conjugates. That is if (1 + i) is imagined, then its conjugate (1 − i) transformthe imaginary by the conjugate function (1 + i) × (1 − i) = 2 and so on in multiplerounds of conjugation. To investigate this real-world implication is indispensable.Without observing this fact and concluding that there are only real events in life,endogenous circular causation relations cannot be pervasive.

All beings and their inter-relations are indispensably real-world phenomena. Inthe more philosophical meaning, Kantian pure reason of deductive a priori reasoning

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_7

139

140 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

I1

1

2HH:( ,S) { } { ,X( ),t( )} Eval. W( ,X( ),t( )), conceptual simula�on con�nuity

3 fi(R( )) = W(X( ),t( )), empirical and inter-

2 evolu�onary

R

ISubject to circular causa�on by intra-

Isystemic

Rlearning.

I4

Fig. 7.1 Imaging the imaginary into the only nature of the world as the phenomenology of real-world

cannot be left dichotomous from the inductive a posteriori reasoning. The two realmsof reasoning are inter-causally relational. This is equivalent to say that the problemof heteronomy as separation between a priori and a posteriori and only forced combi-nation between these is annulled and full explanatory power is embodied in everyevent under inquiry and integration in the only world that manifests as the symbioticweb of a priori and a posteriori embedded together.

In this regard Whitehead1 defines concrescence as a process of social becomingof the universe in which many things or entities, in an extended sense of relations,form an organic unity. Such an organic unity of being and becoming explains thedynamics of the inner space of relations. This is spanned by the permanent presence ofthe unitary law of monotheism. Its realism thenmanifests in the world of concrescentreality of being and becoming.

In the context of the Tawhidi methodological worldview, there is only the contin-uous novelty of learning and unification based on the Tawhidi Law of monotheisticoneness. The Qur’an (Chapter 112) refers to monotheism as Tawhid in terms ofthe totality of belief, practices, universal design, and symbiotic manifestation. Thispervasive extension of Tawhidi phenomenology is based on the need for usingTawhidas the primal ontological Law in respect of its explanatorymethodological worldviewand configured applications for socio-scientific details of ‘everything’.

Figure 7.1 explains that every imaginary conjugates, I1, I2, I3, I4 etc. combines toproduce real-world events. Thereby, the conjugate (I1, I2) combine to produce realevent R1 and its transforms denoted by f1(R1).2 Likewise (I3, I4) conjugate to produceR2 and f2(R2), etc. It is then possible to endogenously interrelate (R1, R2, …), andthereby, (f1(R1), f2(R2, …) in reference to the primal ontological law of oneness asinter-causality causing the knowledge-induced phenomenology of wellbeing, W(θ,X(θ), t(θ)), subject to the entire set of circular causation relations according to the

1Whitehead (1978).2Such compounded transforms of complex numbers is stated by DeMoivres’s Theorem of complexnumbers: Let z= r(cos(α)+ isin(α)) be a complex number and n any integer. Then, zn = rn(cos(nα)+ isin(nα)). See Schneider, C. (2011). “De Moivre’s Theorem”.Master’s thesis, Department ofmathematics and Statistics, Portland State University, U.S.A.

Objective 141

variables {θ,X(θ), t(θ)} of the wellbeing function in reference to the primal ontologyand its methodological details—the abstracto-empirical. In this paper these well-being functional transformations will be explained in reference to the generalizedequilibrium system that applies to the entire socio-scientific domain of inquiry.

Analytical Properties Along the Trajectory of History HH

The following assumptions are made in our analysis of knowledge-induced evolu-tionary learning processes of unity of relations between the variables of thewellbeingfunction:

1. Monotonic relationships exist between {θ,X(θ} over time intra-system and inter-system in terms of the endogenously related variables via circular causationrelations.Such relationships are true both in the positive and the negative sense.That is with continuously differentiable property of variables and functions fullycomprising the wellbeing system, dX(θ)/dθ > 0 for wellbeing choices (Arabicmaslaha). dX’(θ’)/dθ’ > 0 for negative wellbeing choices (Arabic mafasid indi-cated by asterisks). dX(θ)/dθ’ < 0, meaning maslaha choices negated in the faceof false preferences, and vice versa. Maslaha choices and mafasid choices canappear together in the wellbeing function. Their presence can be expressed asa diminishing ratio as ‘θ’ increases. For example, interest (‘i’ riba) and rate ofreturn in legitimate trade (r) can appear together in the wellbeing function as theratio, (i/r)[θ] with (d/dθ)[(i/r)[θ]) < 0; that is as evolutionary learning increasesconsciousness of maslaha choices.

2. The monotonicity property of evolutionary learning of (1) implies non-existenceof optimal points and steady-state equilibrium. Only evolutionary convergencesexist at points of decision-making along the historiographical trajectory HH.

3. The wellbeing function is expandable as a polynomial in the neighbourhoodof evolutionary equilibrium points such as of a point of decision-making byinteraction, integration, and evolutionary learning; and thus across the entire ofHistory HH.3

4. Assumption (2) implies that over discrete sequences of evolutionary learningprocesses in time there are decision-making points that invoke the evaluation ofthe wellbeing model with inter-causal relations between the variables and simu-lative decisions are made along HH. A special case of the emergent polynomialin {θ, X(θ)} over time-periods of decision-making processes with evolutionarylearning in unity of knowledge, is the inter-generational asset-valuation model.4

These properties are shared by the following specific form of the wellbeing func-tions. They are transformed out of imaginary functional conjugates into a real-valued

3Such polynomials are determined by the multivariate Taylor’s Series in real, continuouslydifferentiable variables and their functions.4Choudhury, Hossain, and Shahadat (2019).

142 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

function expressing real events of the resulting wellbeing criterion. An example ofthese kinds of functional transformations is that of two events. One gives a poly-nomial solution of income multiplier with marginal propensity to consume havinga value greater than 1. This causes an explosive in come multiplier effect of thechange of income, and is an unreal solution of the multiplier polynomial. People inthis situation live in the imaginary land of infinite bliss of wellbeing by income andconsumption. Such a heavenly bliss must be transformed into real-world effects byits complex conjugates. Such is the qur’anic meaning of the experience that heavenlydwellers would compare the heavenly real attributes with their similitudes of earthlylife: “…Every time they are fed with fruits therefrom, they say: ‘Why, this is whatwe were fed before,’ for they are given things in similitude…” (Qur’an, 2:25).

The wellbeing function of the imaginary world in income (Y) and consumption(C) denoted by.

X(i = √(−1) · θ = (Y, C)[

√(−1) · θ]. There is no relevance of ‘t’ in such a world

of Nirvana. The imaginary wellbeing function has the expression,

W((

i = √(−1) · θ

))= exp(i · θ) (7.1)

Likewise the same description of imaginary bliss would apply to the complex form,

W((1 + i = 1 + √(−1) · θ)) = exp((1 + i) · θ) (7.2)

The conjugate functional transform to replace the imaginary wellbeing function intothe real experience ofwellbeing of the qur’anicHeavenlyBliss we proceed as followsby referring to expression (7.2).

W(θ)) = exp((1 + i) · θ) ∗ exp((1 − i) · θ) = exp(2θ), t is irrelevant (7.3)

The further transformation of expression (7.3) by X(θ) = (Y, C)[θ] is this:

W(X(θ · t)) = exp(2 · (a · Y + b · C))[θ, t] (7.4)

where ‘a’ and ‘b’ are positive coefficients. All coefficients and variables arecommonly induced by the principle of unity of knowledge ‘θ’ ∈ (�, S) as explainedin Table 1 of Preface and in other chapters.‘Time ‘t’ is now relevant to impute valuespertaining to the real-world entities.

Generalized Wellbeing Function 143

Generalized Wellbeing Function

n-times multiple compounding of expression (7.4) to explain multiple intra- andinter-systemic relations yields the generalized wellbeing function,

W(θ,X(θ), t(θ)) =n∏

k=1

Wk(Xk(θ, t)) = exp

(n∑

k=1

(ak · Yk + bk · Ck)

)[θ, t] (7.5)

More generalized transformation of the wellbeing function can be expressed in thelog-linear ‘θ’-induced form of expression (7.5). Without loss of generality of thesymbols we write,

W(θ,X(θ) = (Y1,Y2, ..,Yn,C1,C2, . . . ,Cn, t(θ))[θ ]

=n∑

k=1

(ak · Yk + bk · Ck + c · θ)[θ, t] (7.6)

The system of inter-causality relations of (2n + 1) number of equations between thevectors of endogenous variables is given by,

Ys(θ) = fs(Ys′ ,Cs, θ, t)[θ] (7.7)

Cs(θ) = hs(Ys,Cs′ , θ, t)[θ] (7.8)

s, s′ = 1, 2, . . . , n

θ = W(Y,C, t)[θ] (7.9)

Each of these equations is preferred to be taken in the log-linear form as shownin expression (7.6). The system comprising (7.6)–(7.9) is the generalized systemof computational general evolutionary equilibriums in the vector {Y, C, θ}[θ] thatare firstly estimated and then the estimated coefficients are simulated to gain onunity of knowledge between the variables and improve the economy of scope of thequantitative measure of evaluated wellbeing given by Eq. (7.9).

The complex form of the wellbeing evaluation system is due to the θ-induction ofthe coefficients. This means that, in continuous knowledge, space and time dimen-sions statistical analysis to improve the degree of unity of knowledge between theevaluated variables of the wellbeing function is carried out by simulation of the coef-ficients. Then the corresponding policy-analyses in this direction are accomplishedalso by simulating the coefficients and improving the inter-variable correlation. These

144 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

simulated results based on gaining unity of knowledge in the wellbeing by evolu-tionary learning and thus complementarities between the evaluated variables are doneby the inter-causal relations.

The method of Spatial Domain Analysis is a way to quantify the continuoussimulation results. Every instance used to simulate the coefficients in accordancewiththe principle of unity of knowledge in the wellbeing function conveys the meaningof choice of different feasible θ-values. Thereby, new vectors of evaluated variablesare obtained via the circular causation relations. Later on in this chapter we providean empirical example of the use of SDA in simulating the wellbeing function withθ-embodied variables and coefficients.

An Example of Continuous θ-induced Simulation

Charity for the good cause such as of poverty alleviation and human empowermentought to be a continuously conscious activity in citizenship. Charity through itsmultidimensional impact causes systemic rejuvenation of wellbeing among manyand for all times. The Qur’an (2:245) declares: “Who is it that would loan Allah agoodly loan so He may multiply it for him many times over? And it is Allah whowithholds and grants abundance, and to Him you will be returned.” A saying of theProphet Muhammad (hadith) goes: (Sahih Bukhari, Chapter 24, No. 506): “Allah’sApostle said, “When a woman gives in charity some of the foodstuff (which she hasin her house) without spoiling it, she will receive the reward for what she has spent,and her husband will receive the reward because of his earning, and the storekeeperwill also have a reward similar to it. The reward of one will not decrease the rewardof the others.“ Indeed, the sage goes, “Charity begins at home”.

In the context of our formalizing of wellbeing charity by its multidimensionaldevelopment effects enters in relation to compound functions of the interrelatedbenefits that multiply. The meaning conveyed in respect of our wellbeing formalismis explained by Fig. 7.2. The trajectories of loci of knowledge-induced evolutionarylearning events, Es = {E(θ, X(θ), t(θ))}, form compounded wrappings of the evolu-tionary fields of events intra- and inter-systems in knowledge, space, and time dimen-sions. This is like the multidimensional and ever-rewarding benefits wrapped byhistoriographies of knots in HsHs.5

The events Es, s = 1, 2, … denote evolutionary convergences as points of evolu-tionary learning equilibriums.The evolutionary convolutions aroundE’s denote intra-systemic evolutionary learning in the form of conic depiction shown in 3. There aresimilar depictions along all possible historiographies like H1, H2, etc. as shown.H1 H2…etc. represent wrappings of the links between historiographies of events incontinuous evolutionary learning trajectories as described here.

Figure 7.3 is the vertical depiction of Fig. 7.2 in terms of evolutionary learning in

5Hoste (2005).

An Example of Continuous θ-induced Simulation 145

1

H1

H

E1 E2 E3 En

H2

H2

Fig. 7.2 Compounded historiographies of evolutionary learning paths

Fig. 7.3 Intra- andinter-systemic compoundedwrappings of evolutionarylearning in historiography

s’E

H2’ H2 H1 H1’

s’E

1E

knowledge, space, time dimensions of inter-causal relations intra-systems. The sameare repeated inter-systems over time in terms of evolutionary learning processes.

Now returning to our example of charity taken in its broadest meaning of moraland material productivity through wellbeing, the depictions shown in Figs. 7.2 and7.3 explain the ever-expanding empowerment of wellbeing across historiographiesof evolutionary learning trajectories. The valuation of wellbeing takes place at eachof the processes by time-periodic realization of stations of decision-making. Thesecoordinates are denoted by the evolutionary convergences of E’s. In fact these coor-dinates define the entire loci of historiographies, but are marked out for evaluation

146 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

at specific points. The example in this case is of valuation of assets along the inter-generational trajectories of moral-material embedding of net wellbeing compoundedtogether.

Evolutionary Learning Property of Wellbeing Functionin Its Exponential Compounded Wrapping

The generalized evolutionary learning property of the wellbeing function in its formin expression (7.4) generalized to expression (7.5) is this:

(d/dθ)

(exp

(n∑

k=1

(ak · Yk + bk · Ck)

)[θ, t]

)= exp

(n∑

k=1

(ak · Yk + bk · Ck)

)[θ, t](7.10)

>0, identically irrespective of any particular process along HH(E(θ)). In the exampleof charity as moral-material empowering conscious human rendering and the caseof all moral-material transformations to lie in the real domains rejecting the rele-vance of imaginary complex fields, all wellbeing choices convey ceaseless benefitsto individuals and society at large.

Such a compounded inter-causal relationship between the moral and materialvalues of the widest meaning of charity can be learned from the following saying ofthe Prophet Muhammad: The Prophet said, a voice was heard commanding a cloudto irrigate a man’s garden and so he did as a productive undertaking. When the manwas asked what he did with the garden, he replied that he estimated the produceof his garden. Then he distributed one-third to charity (moral consciousness), keptone-third for himself and his family (the social function), and invested one-third backinto the garden (the economic function). Such indivisible linkage between moral andmaterial values in their extensiveness, no matter how small, is indeed the propertyof the evolutionary learning along historiographies of inter-causal organic relationsbetween the characterising variables of the wellbeing function. The Prophet’s guid-ance in this regard of the permanent linkages by embedding of themoral andmaterialvalues can be discovered in his saying (Al-Bukhari and Muslim): “Protect yourselffrom hell-fire even by giving a piece of date as charity.”

The valuation of life and wellbeing through unity of knowledge in all of beingand becoming is a pervasive truth of complementarities between potentialities. In theexamples of asset-valuation and wellbeing based on evaluation of health program asa resource, each event point when ascribed becomes an evaluation of the wellbeingobjective criterion subject to all the details of the circular causation relations. Theserelations interactively integrate the moral and material values in cogent sets of vari-ables embedded in ‘θ’-parameter over intertemporal evolutionary learning processes.One way how moral and material values are integrated in the wellbeing evaluation

Evolutionary Learning Property of Wellbeing … 147

of health as human resource can be by embedding psychotherapy with physiologicaltreatment of patients. Rehabilitative procedures now become effective.

Furthermore, because of the inter-causality between these conscious undertakings,any one without the other responsibilities breaks up the meaningfulness of socioeco-nomic valuations. Thereby, any and every model of evaluation in the truly ‘Islamic’case must be constructed explicitly in terms of the moral and material explana-tory variables for Islamic wellbeing. Without this fundamental requirement therecannot be a truly Islamic economic, social, and scientific undertaking. The indepen-dence and exogenous treatment of moral values is nonetheless an academic barren-ness of existing ‘Islamic’ economics in its garb of mainstream economic imitation.Contrary to the Tawhidi methodological worldview, shari’ah as human concoctedbody of jurisprudence accumulated over a long period of Islamic history, and havingno qur’anic equivalence to Tawhid (Qur’an 45:18;)6 has remained barren of anytruly Islamic epistemic relevance. Tawhid is ontological in its unique and universalmethodology. Shari’ah is not.

Rather, shari’ah represents a body of juristic rules and interpretations, called fiqh.These have been formulated by sects and their leaders throughout Islamic history.Such rules range from personal beliefs to state legislation in accordance with inter-preted ideological spectrumof sects (madhab). The practice of such shari’ah develop-ments are found today as in the past in reference to sectarian interpretations (madhab)and their enactment by institutions. Examples of such enforcements by shari’ahrules are found in the case of declared legitimacy of debt-ridden ‘Islamic’ financialinstruments; thereby the functions and goals of Islamic banking; and the enforce-ments of rules by state institutions (Malaysia, Indonesia) and institutions (IslamicDevelopment Bank, Islamic universities).

Shari’ah thereby developed under the influence of interpretations, cultural back-ground, and transference of sectarian legal ways over space and time. Such variationsin perspectives have no place in the building of a unique and universal theory ofsocio-scientific order, though engaging problem diversities by disciplines. Shari’ahled scientific thought in the field of so-called ‘Islamic’ economics thus succumbedto the rationalistic episteme of mainstream economic thought along with its impos-sibility in incorporating the moral-material unified worldview by methodologicalformalism. In this work we have discarded the shari’ah approach altogether, exceptwhere the meaning of shari’ah is equivalent to Tawhid as law and methodologicalapplication in reference to monotheistic unity of knowledge in the qur’anic entirety.Such entirety encompassing soul, mind, andmatter in the res extensa and res cogitansof knowledge, space, and time entirety of the most comprehensive meaning of truereality is derived frommany qur’anic verses, and specifically from the following one(Qur’an, 2:255; with interjected inferences in brackets): “Allah. There is no god (noother but the monotheistic law and meanings) but He, the Living, the Self-subsisting,Eternal (the most pervasive eternal law).No slumber can seize Him nor sleep (themonotheistic law exists in continuum).His are all things in the heavens and on earth

6Qur’an (45:18): “Then We put you, [O Muhammad], on an ordained way concerning the matter[of religion]; so follow it and do not follow the inclinations of those who do not know.”.

148 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

(entirety of creation).Who is there can intercede in His presence except as He permits(no extraneous law and meanings)? He knows what (appears to His creatures as};before or after or behind them (Tawhid as law explains everything). Nor shall theycompass aught of His knowledge except as He wills (human evolutionary learning).His Throne does extend over the heavens and the earth, and He feels no fatiguein guarding and preserving them for He is the Most High, the Supreme (in glory)universality and uniqueness of Tawhid as law.”.

Thus by interpretation of Tawhid in relation to the details of the world-system,specifically economic theory and its quantitative formulation this work invokes atheory of mesoeconomics. It conveys a substantively new formalism of the meaningof microeconomic foundation of aggregate economics (macroeconomics in its clas-sical, neoclassical, new classical and Keynesian sense). The new formalism of thewellbeing criterion is the proper objective of the meso-economics of unity of knowl-edge between the moral and material domains in continued sustainability acrossknowledge, space, and time dimensions. The uniqueness and universality of the well-being objective is understood in respect of its generalized adaptation to ‘everything’explained by the symbiotic inter-causal relations between the entities and variables.This attribute prevails even though given the interdisciplinary diversity of issuesand problems, but organically integrated together intra- and inter-systems. One canthen image the intricacies of a neurocybernetic world system of systems. Bouldingwrote regarding the need of science to be transparent for abstraction and application,rather be opaque. Boulding7 wrote: “The crisis of science today arises because of theincreasing difficulty of such profitable talk among scientists as a whole. Specializa-tion has outrun. Trade, communication between the disciples becomes increasinglydifficult, and the Republic of Learning is breaking up into isolated subcultures withonly tenuous lines of communication between them - a situation which threatensintellectual civil war. The reason for this breakup in the body of knowledge is that inthe course of specialization the receptors of information themselves become special-ized. Hence physicists only talk to physicists, economists to economists - worse still,nuclear physicists only talk to nuclear physicists and econometricians to econome-tricians. One wonders sometimes if science will not grind to a stop in an assemblageof walled-in hermits, each mumbling to himself words in a private language that onlyhe can understand.”

Even so in the field of shari’ah and economics,8 shari’ah contrary to its strictlyTawhidi equivalence of meaning in the Qur’an, conveys certain abstruse meanings.They are hardly acceptable in formal logic and belief. For instance, shari’ah bereft ofTawhid as law in itsmethodological emptiness, cannot lead to the organic inter-causalendogenous relations between morality/ethicality and materiality. Consequently, thesubstantive formalism of the wellbeing function (maslaha) remains unknown in so-called ‘Islamic’ economics and finance. Instead, writers and shari’ah led institutionsare groping for the formation of what is referred to as Maqasid as-Shari’ah Index9

7Boulding (1956)8Choudhury and Hoque (2017).9Asutay and Harningtyas (2015).

Evolutionary Learning Property of Wellbeing … 149

having exogenously assigned weights to its various selected variables that do notarise from the vastly extensive possibilities of the five limited items of maqasidas-shari’ah.10

Thevastlymany choices interrelate endogenously according to the precept of unityof knowledge. The coefficients of the wellbeing function are thereby also endoge-nously evaluated by estimation and simulation. The resulting extended systemic rela-tional approach to inter-causality betweenTawhid determined endogenous choices offelicity in the wellbeing function are endlessly extensive in the variables of goodnessof choices.11 Thereby, the wellbeing objective function is evaluated subject to theirenumeration of as many variables as possible within the limits of knowledge andcognition. The centrepiece of the wellbeing objective is thereby a most significantmethodological contribution of our times in the meso-analytical framework of allsocio-scientific inquiries.

Spatial Domain Analysis

Real world entities occupy geographical space. There exist inter-causal relationsbetween the various coordinates and systems of such geographical space. We thustreat such inter-causal relations as being relationally linked to each other.12 In thelanguage of systems and cybernetics a technology/system organizes the spatialor locational information. This mode of data simulation in the study of linkagesenables visualisation, analysis andmodelling of the spatial interaction between inter-relational coordinates of variables. This is the essence of pervasive endogeneity insystems of inter-causal relations. The whole underlying computer-assisted methodis called Spatial Domain Analysis (SDA). It is a derived method of the GeographicalInformation System. It is a method borrowing from the ontological methodology ofunity of knowledge expressed by organic symbiotic interrelations between variables,coordinates, and their functional relations. Thereby, the properties of interaction (I),integration (I), and evolutionary learning as evolutionary epistemology,13 and thusthe abbreviation (IIE), become amenable of study by SDA-GIS in the socioeconomicdevelopment topology.14

In respect of the above explanation of SDA-GIS we find that this method carriesforward the methodology of Tawhidi unity of knowledge and its underlying inter-causal dynamics of evolutionary learning of IIE-processes cogently by the use ofthe GIS computer-assisted technique. Thus, GIS can be considered as a technology,

10(1) Protection of religion, (2) Protection of reason, (3) Protection of family, (4) protection ofprogeny, (5) Protection of property rights.11Qur’an (55:13): “So which of the favors of your Lord would you deny?”.12Hossain (2002).13Campbell (1988).14Choudhury, Zman, and Harahap (2007).

150 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

facilitating the study of spatial cause-effect circular relations between domains andtheir entities, variables, and relations.

In addition to the above-mentioned effectiveness of SDA in IIE-process studiesof complex organic relations, GIS-SDA also provides visualisation of the result ofcircular causation relations and the evaluated wellbeing function in respect of theprinciple of unity of knowledge in IIE-processes.. Hence, the interrelated componentsand their dynamics of IIE-processes can be configured quantitatively in the real-world system context. In this way, GIS facilitates the study of complex systemsimaged in andby the ‘computer-assistedworld-system’. Such kinds of configured andquantitative results have several advantages in enabling the development of simulatedsolutions of complex system and cybernetic oriented problems. SDA enables thecapability of GIS to generate various “what if” scenarios. Such results are derivedas simulated ones in the IIE-decision making evolutionary learning processes forevaluating the effects of decision-making process on a real-time basis. Thus, it can beseen thatGIS is an appropriate tool to dealwith the themeofRelational Epistemology,which underlies the IIE-learning processes.

In regards to the multidisciplinary study enabled by the complex dynamicalapproach of GIS technology we note that many transdisciplinary fields can belaunched in system and cybernetic study. Examples are of complex systems existingon the space of the earth’s surface, and in other spaces including the topologicalspaces of other planets, the cosmological space, the space of human soul, mind andbody as the captured by imaging of the imaginary into real valued functions.15 Mostimportantly, SDA can be applied to analyse and visualise the imaginary space oftopological mathematics and statistics. Contrary to SDA, the SPSS statistical tech-nique handles only linear forms of relationships where coefficients although statis-tically estimated, do not lend themselves to policy and environment perturbations incomplexly interrelated situations.

The coefficients of the wellbeing model with the system of inter-causal relationsestimated by the SPSS method of regression equations corresponding to non-linearmodels cannot explain the sectoral impact of multiple policies and inter-sectoralchanges. Hence, the SPSS technique is of a static nature lacking a dynamic way ofshowing changing scenarios on a real-time basis, taking account of policy and deci-sion variables. Therefore, SPSS estimates alone are unable to bring out the dynamicsof IIE-learning processes that explain relational epistemology. In the face of limi-tation of explaining the dynamics of such results of SPSS, SDA is applied to theregression coefficients to transform them into process learning ones with simula-tion cause by inter-sectoral policies and decision making. Thereby, SDA enables theretrieval of hidden causations that lie embedded in the statistical domain or in animaginary space of development planning.

We have used a combination of SPSS method of estimation and the SDA simu-lation method to explain dynamic perturbations of the coefficients that are causedby hidden factors but remain hidden because of their endogenous nature of inter-relations. The following equation is one of the entire systems of circular causation

15Longley, Goodchild, Maguire, and Rhind (2001).

Spatial Domain Analysis 151

equations of the underlying wellbeing criterion explained to construct complemen-tary inter-sectoral relations under the development plan of sectoral diversificationand balanced development.

IogQma = −7.017 + 1.359logQp + log0.306 Qg + 0.291 log Qmi − 0.328Qut − stats( − 970) (1.148) (0.607) (2.397) ( − 0.397)

−0.171 Log Qc − 0.002 Log Qfin + 0.401Log Et − stats( − 0.675) (−0.101) (0.642)

Other similar circular causation between the sectorswere estimated by SPSSmethod.

Legend:

(ma) manufacturing sector; (p) petroleum sector; (g) gas sector; (mi) minerals sector;(u) utility sector; ( c) construction sector; ( f) sector; E = total number of employedlabor force. Q’s are the various sectoral GDPs.

This paper demonstrates how statistical estimates are sensitized by endogenousfactors in the spatial domain by SDA method. Such sensitivity analysis enablesa graphical visualisation of the statistical space from different perspectives usingspatial domain analysis. The partial elasticity coefficients data generated in a statis-tical space by using SPSS program has been considered to visualise the degree ofcomplementarities gained between the sectors for the case of sectoral GDP and totalemployment by sectors. Thematrix of the generated data in statistical space was usedto visualise the inter-sectoral input–output contributions to sectoral GDP and totalemployment. From this kind of the input–output table we display the sectoral link-ages and possibility of enhanced linkages in both 2-D and 3-D spatial domains. Weuse the estimates of sectoral GDP and total employment variables for the Sultanateof Oman, 1980, 1990 and 2000. Empirical details are given elsewhere.16

It can be demonstrated that the data in spatial domain is easier to visualisein an interactive and user-friendly way than in a statistical space. Furthermore,Spatial Domain Analysis (SDA) could support a system of circular causation type ofdecision-making processes as was explained in several earlier chapters in the contextof relational epistemology. In addition, SDA’s graphical output enables us to obtainalternative estimated scenarios of partial elasticity coefficients in the inter-sectoralCobb–Douglas form of GDP relations by taking account of policy and decision vari-ables. By so extending the GIS technology to a problem of development planning amajor contribution is attained in the field of GIS-application in the economic, socialand development space.

16Choudhury and Hossain (2006).

152 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

Partial Elasticity Coefficients

The above-mentioned estimated equation formanufacturing sector obtained by usingSPSS show the degree of interaction between manufacturing and other sectors. Forexample, there is a negative interaction between manufacturing and finance sectorsince the value of the partial elasticity coefficient in this case is negative, whichis −0.002. Hence, there is an absence of linkages between the two sectors. In thistype of analysis it is difficult to show how this negative interaction (marginal rateof substitution = trade-off) between the given sectors can be simulated into positivesectoral output elasticity coefficient (sectoral linkage) by inducing policy or choicevariables, and therefore, bringing about sectoral integration and linkage. In addition,the mere SPSS method does not allow incorporation of various changing values thatcontinuously affect policy and choice variables. Thereby, the evolutionary characterof the sectoral change in terms of GDP and total employment remains unexplained,since the estimated coefficients are limited to only one value of policy- inducedvariable. Thus in all, the mere SPSS statistical method cannot bring out the dynamicnature of sectoral interaction and linkages that can illustrate the embedded Integrationand Evolution by learning processes in regards to sectoral linkages.

Input–Output Matrix Format of Generated Data

The equation presented above shows the interaction betweenmanufacturing andothersectors. Similarly, other relational equations are developed to show the numericalinteraction between each sector and other ones. The statistical estimates of the partialelasticity coefficients of the multivariate and multi-equations regression model areapplied to the estimates of sectoral GDPs to compute the sensitivity analysis by suchelasticity coefficients.17 This sub-model is a revised form of a dynamic input-outputrelationship between sectors. Examples of inter-sectoral GDP and total employmentI-O matrixes are shown below.

From the above arguments we conclude that neither log-linear form of Cobb-Douglas equation nor its derived matrix format of the I-O model is capable of effec-tively illustrating the Interactive (I) character of IIE-process model of developmentplanning. In addition, due to the above-mentioned drawbacks in SPSS related estima-tion in showing dynamic scenarios under different policy induction, such statisticalderivations left to themselves remain incapable of demonstrating circular causationbetween the sectors. Thereby, the Integration component of the IIE-process model isignored.Because such statisticalmethods by themselves donot illustrate the changing

17In general, take a general form of the partial elasticity coefficient in the equation, logxi(θ)=Ai(θ)+ [�jaijlogxj][θ] + bilogθ + εi. ‘i’ denotes sectors shown in the. Partial elasticity of xi to any xj isgiven by, ∂logxi/∂logxj = (xj/xi) * (∂xi/∂xj) = aij. Thus the sensitivity of the changes between thex-variables of sectoral outputs is given by, ∂xi/∂xj = aij*(xi/xj), i , j = 1, 2, …∂xi/∂xj = aij*(xi/xj),i , j = 1, 2, …

Input–Output Matrix Format of Generated Data 153

inter-sectoral scenarios with policy induction, therefore the Evolutionary (E) compo-nent of the IIE-process model of development planning is also left out. At the endthe inherent dynamism of the IIE-process model of development planning is difficultto perceive in the SPSS statistical approach left to it.

In the following section we will show how the computer-assisted real-time simu-lation results enabling the conversion of negative partial elasticity coefficients intopositive valued ones by endogenous impact. In addition the method of spatial repre-sentation of the SPSS statistical results in the GIS/SDA environment are presented.The SDA-generated results on visualisation of development planning perceived inthe relational space of a development planner are charted. The results are shownbelow.

The approach of combining different sets of information, as is the casewithmesoe-conomic treatment enables the various tasks to be performedwithinGIS environmentsuch as spatial query, spatial reasoning, spatial planning, spatial analysis and spatialmodelling of a real world problem like sectoral development planning as addressedin this book. The linking of the three modes (spatial, thematic and temporal) canbe seen as the formation of the next generation of spatial database. This allows theanalysis of the real world problem in real-time basis to be addressed in this exerciseand to show the simulation of the changing scenarios based on the perturbationscaused by policy variables.

Figure 7.4 illustrates the interaction betweenManufacturing and the other sectors.The intensity of interaction is highest in the deeply coloured region and reduces withthe thinness of colour. As mentioned previously that statistical data was assigned asa value to one of the fields (‘Man’) of the Tabular database of the thematic mode andthis database was integrated with the Feature Table of the spatial vector data structure

Interac�on between manufacturing and other sectors

Fig. 7.4 Visualisation of sensitivity of elasticity coefficient on sectoral GDP Data in 2-D Surface

154 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

known as Shape File. In this way, statistical data were converted into spatial domain.Figure 7.4 demonstrates this conversion in a graphical way. Such a transformationfrom statistical space to spatial domain enables a better visualisation of the interactionbetween the sectors. Thereby, the IIE-process model of relational epistemology indevelopment planning is displayed by the use of SDA-method.

The most important result here is the possibility of visually simulating the statis-tical results in real-time. Each of such moving simulated point in the spatial domainrepresents a policy-induced form and the use of appropriate endogenous factors thatcause better linkages between the sectors, better integration as a component of theIIE-processmodel. In thisway, the improving linkagesmove the lighter visual regionsinto deeper regions, meaning that there is enhancing intersection between the regionsas shown. In other words, the partial elasticity coefficients that were negative in theSPSS-estimated regression equations, signifying weak or no linkage between sectorswere simulated by SDA into positive valued coefficients. Such a transformation ofcoefficient values is the example of Evolution bymeans of endogenous induction andstructural changes in development planning in the IIE-process model. Thus, all thethree components of the IIE-process model are demonstrated in the Spatial DomainAnalysis.

Visualisation of Matrix Data Conversion into 2-D and 3-D

Applying the mentioned procedures, the I-O matrix derived from statistical esti-mation (coefficients) is converted into spatial domain. Figure below visualizes thecontribution of manufacturing sector to other sectors (Fig. 7.5).

It is important to note that in this type of 2-D representation although an under-standing of the changing contribution (interaction) of a sector to another at an intervalof a year can be perceived, it does not allow an understanding of the other twocomponents, namely Integration and Evolution by learning in the IIE-process. Thismissing attribute can be achieved by 3-D demonstration of the data of the 2-D space.The reason is that the visualisation of data in three-dimensional perspective enablesunderstanding of relationships that remain abstract in two-dimensions, allowing 3-Dmodelling of surfaces other than elevation (z-value) and information analysis. Hence,a more realistic visual display of sectoral complementarities (linkages) conveyingsystemic unity of knowledge can be shown in the 3-dimension representation inFig. 7.6.

Figure 7.6 shows the prevailing state of linkages (or not) between sectors, takingaccount of manufacturing sector’s contribution. Hence the Integration component ofthe IIE-process model can be shown in 3-D approach. In addition, the figure allowsan understanding of the existence of complex sectoral interrelationships in theirendogenous effects. The visualisation of this type of valuable information remainshidden in the 2-D approach.

Conclusion 155

Matrix Result: Manufacturing (2-D)

Sectors Sectoral Contribu�on

Range of Matrix Values of (Q, E) by year (1980,1990 and 2000) and sectors

Year

Fig. 7.5 Sectoral contribution in 2-D surface

Conclusion

We have mentioned in this chapter and entire work that objectivity of inquiry in allits deepest context is of the first essence of both moral/ethical and material realitycompounded with each other. This ontological principle stands out both for mundaneexperiences of life and real world phenomenology and for the most abstruse concep-tions of mathematics and mathematical sciences. In this regard the objectivity ofmathematics and mathematical science rests on the real world inquiry. This domainin other words is the ‘whole truth and nothing but the truth’. So let us use it to explainthe divine with unfailing tenacity. Contrarily, other shadows of mathematical anal-ysis, such as the use of complex number and functions are seen as tools. In otherwords, these shadow attributes of mathematics are necessary precisely to convertthe imaginary world into ‘real’ world-system. Imaginary and complex treatmentsof mathematical functions comprise ‘half-truth’. They must convert by imaginaryconjugates into real world phenomena of logic, mind, and real-world realism. Thusin regards to the real-world objectivity of mathematics in the final events of real-numbers and objective reality of our experience in the analytical world-systemwritesMoschovakis18: “The main point in favour of the realistic approach to mathematicsis the instinctive certainty of most everybody who has ever tried to solve a problem

18Moschovakis (1980 , p. 605).

156 7 Imaging the Imaginary Events in Evolutionary Learning Trajectories of Wellbeing

Sector

Fig. 7.6 State of sectoral linkages in 3-D visual display—betweenmanufacturing and other sectors

that he is thinking about ‘real objects’, whether they are sets, numbers, or whatever.”Such is the meaning of imaging the imaginary into real objectivity.

Thus we claim by ontological deduction and its continuity by recursive trans-ference with inductive reasoning that an ultimate objective criterion of the socio-scientific evaluations is to be found in the indispensible wellbeing criterion. Thesubstantive meaning of wellbeing lies in its origination from the ontology of unity ofknowledge. Then the ultimate objective of life and experiencemust lie on the quest forreality in monotheism (Tawhid). We have explained such objective embedding of thetrue and real world of the whole truth and nothing but the truth in regards to the eval-uation of the wellbeing criterion. Thereby emerges the large system of inter-causalrelations between all variables, entities, and functions. These are entirely endoge-nous by the sheer dynamics of evolutionary epistemology. The Qur’an (30:11) refersto this phenomenological reality of the evolutionary world-system in its generalityand particulars within the evaluation of wellbeing criterion, subject to inter-causalitybetween endogenous representations, by the term khalq in-jadid or khalqa summayu-iduhu (re-origination).19 The evolutionary epistemology is thus to be found inprecisely analytical ways in the Interactive, Integrative, Evolutionary (IIE-learning)properties of the learningworld-systemof unity of knowledgeby inter-causality in thewellbeing criterion as the truly real objectivity of organic unity of the world-system.

19Qur’an (30:11):“It is Allah Who begins (the process of) creation; then repeats it; then shall ye bebrought back to Him.”.

Conclusion 157

In this chapter we have gone beyond the earlier chapter on wellbeing criterionto transcend into the vastly mathematical comprehension of this objective criterionin the domain of true reality.20 The Tawhidi methodological worldview of unityof knowledge as the primal ontological foundation makes such inquiry possible.It transcends over the mainstream constriction of socio-scientific rationalism andeconomic rationality. It proves the narrowness of the field of shari’ah that cannotanswer the truly big questions of the theory of ‘everything’.21 Economics as scienceshares in this domain of ‘everything’. This is the realm of totality by themathematicalcompleteness of inter-causal unity of knowledge from Beginning to End.22

References

Asutay, M., & Harningtyas, A. F. (2015). Developing Maqasid al-Shari’ah index to evaluate socialperformance of Islamic banks: A conceptual and empirical attempt. International Journal ofIslamic Economics and Finance Studies, 1(1), 5–64.

Boulding, K. (1956). General systems theory, the skeleton of science. Management Science, 2(3),197–208.

Campbell, D. T. (1988). Evolutionary epistemology. In G. Radnitzky & W. W. Bartley (Eds.),Evolutionary epistemology, rationality, and the sociology of knowledge (pp. 47–89). La Salle, IL:Open Court.

Choudhury,M.A.,&Hoque,M.N. (2017). Shari’ah and economics:Ageneralized systemapproach.International Journal of Law and Management, 59(6), 993–1012.

Choudhury, M. A., & Hossain, M. S. (2006). Development planning for the Sultanate of Oman.Lewiston, NY: Edwin Mellen Press.

Choudhury, M. A., Zman, S. I., & Harahap, S. S. (2007). An evolutionary topological theory ofparticipatory socioeconomic development. World Futures, 63(1), 1–15.

Choudhury, M. A., Hossain, M., Shahadat, T., & M. . (2019). Islamic finance instruments forpromoting long-run investment in the light of the well-being criterion (maslaha). Journal ofIslamic Accounting and Business Research, 10(2), 315–339.

Hossain, M. S. (2002). A method to reduce flood impact on road transportation systems. Ph.D.thesis,Department ofComputation,University ofManchester Institute of Science andTechnology(UMIST), U.K, unpublished.

Hoste, J. (2005). The enumeration and classification of knots and links. Amsterdam: Handbook ofKnot Theory, Elsevier.

Longley, P. A., Goodchild, M. F., Maguire, D. J., & Rhind, D. W. (2001). Geographic informationsystems and science. New York: Wiley.

Moschovakis, Y. (1980). Descriptive set theory. Amsterdam: North Holland.Whitehead, A. N. (1978). Process. In: D. R. Griffin & D. W. Sherburne (Trans.) Process and reality(pp. 208–215). New York, NY: The Free Press.

20Qur’an (69:1–3): “The Inevitable Reality – What is the Inevitable Reality? And what can makeyou know what is the Inevitable Reality?”.21Qur’an (30:7): “They know but the outer (things) in the life of this world: but of the End of thingsthey are heedless.”.22Qur’an (36:36): “Exalted is He who created all pairs - from what the earth grows and fromthemselves and from that which they do not know.”.

Chapter 8Meso-economic Frameworkof Decision-Making

Abstract The theory of evolutionary learning organization carries with it ratio-nalist premises as well as behavioural aspects of decision-making that are increas-ingly becoming centerpiece of organizational decision-making that has significantimpact on social preference formation. Indeed, organizational behaviour in suchethico-economic sense is the carrier of conscious attributes and consequences in thesocial spectrum where markets, institutions, and behavior interact. In this chapterwe will study a special kind of a model of interaction that is different from manyconventional ones. The primary difference is caused by the endogenous nature ofpreferences, decision-making, policies and programs in the ethico-economic frameofconscious decisions. Thus, while economic rationality is still the basis of formulatingsuch organizational behavior, ethics is either considered exogenously or explainedunder the same postulates of economic rationality, bounded though by a certain slackin full-information. In this chapter, evolutionary organizational decision-making isexplained as the process of interaction leading to integration, and thereby into inces-sant processual reproduction of knowledge as consciousness to establish strongerethico-economic organizational social systems. This involves serious theoreticalformalism belonging to behavioural aspects of organizations, institutions, and moralsocial reconstruction. Thus the goal of a technical meaning of wellbeing is studied.The structure and function of these entities in ethico-economic decision-making areexplained.

Objective

Conventional organizational behaviour is premised on two fundamental axioms.Firstly, the axioms comprising economic rationality are carried through in treatingan ethico-economic view. Secondly, ethics is permanently treated as an exogenousfactor in ethico-economic decision-making. Even when evolutionary dynamics isinvolved in the study of organizational ethico-economic behaviour, the models are ofthe type of social Darwinism. Among the last kind of studies that will interest us in

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_8

159

160 8 Meso-economic Framework of Decision-Making

this chapter are premised on the epistemologies forwarded by Popper (1988) in falsi-fication dialectics; Jackson (1993) in system theory; Soros (2000) in Popperian typenature of unmeasured uncertainty of the financial world; Edel (1970) in the scientifictreatment of ethics; and Choudhury (2004) on endogenously learning organizationsas an exception to the exogenous treatment of the same. The focus in this chapter ison a critical examination of several such works and the formalization of evolutionarylearning organizational behaviour under the episteme of unity of knowledge.

The objective of this chapter is thus to expound the interactive, integrative, andevolutionary model (IIE-model) of organizational behaviour. The epistemologicalbasis of such a methodology of decision-making is constructed upon and derives itsconscious framework of behavioural perspectives plus decision-making from unityof knowledge. Besides, such an episteme is instrumental in constructing the unifiedworld-system, which in the case of our discourse in this chapter, is the synergisticintermingling of the ethico-economic, conscious, and organizational frameworkwithin institutionalism and the moral social reconstruction.

The review of the literature is subsumed in the discourse of various worksconsidered in the context of this chapter. No separate section is therefore allocated.

Introduction: Some Definitions

We commence this chapter by definitions of some key concepts that will be usedthroughout the content of this chapter.

Evolutionary Learning

Evolutionarymodels limited to bounded rationality and dialectical episteme are thoseof Simon (1960) and Jackson (op cit). Yet such models reflecting organizationalbehaviour are ad-infinitum evolutionary learning models not having any particularconvergence into a unified worldview of the human future, except into rationalism.Rationalism bears down into bounded economic rationality and a conflicting andcompeting dialectical paradigm of evolutionary processes. The rational economicbehaviour of maximizing objective criterion functions under bounded, limited, orincomplete information (hence incompleteness of knowledge) drive the formal partof the endemic models.

While these are scientific approaches for studying efficient management, orga-nizational and institutional behaviour (Feiwel, 1987) the resulting implications ofoptimal decision-making must necessarily depend upon complete information, eventhough within a bounded space. Such bounded space in time and continuity of thehuman world-system are propelled forward from one to subsequent processes bymeans of dialectical learning in which any appearance of ethics is caused by exoge-nous role of consciousness. Not being endogenous, the role of consciousness in a

Introduction: Some Definitions 161

systemic sense of causality is not sustainable. At every juncture of the dialecticalprocess there appears an exogenous interdiction. This proves to be institutionallycostly in terms of transaction cost; and is not self-actualized by conscious behaviourand discursive practice.

The continuity process of endogenous and complex organizational, and insti-tutional and social behaviour requires regeneration of resources automatically toengender the evolutionary learning processes across knowledge, space, time andthe systemic continua. If we exemplify such continuous knowledge regeneration bymeans of technology and innovation in such evolutionary learningmodels, then, suchartefacts become endogenous in nature. The consequence on resource regenerationis the continuous and compounded effect of all endogenously relational artefacts inknowledge regeneration.

The impressive example of such continuously regenerated knowledge-inducedreproduction of resources is found in Information Technology. Here both the inputand output of IT are knowledge-flows. By the perfect elasticity of supply and demandof IT, the unit cost of such reproduction and continuity of the knowledge-centeredinput-output production function causes unit cost to decline on an asymptotic averagecost curve. This curve is called the learning curve, but without the endogenous effectsof and in IT.

Consequently, in IT form of models of learning behaviour, the exogenous natureof innovation and technology as in neoclassical treatment of human capital theoryand evolution (Nelson &Winter, 1982) is replaced by the simulation nature of evolu-tionary learning. Consequently, the assumptions of scarcity of resources; thereby, theaxioms of full-information (bounded information), optimal resource allocation, andsteady-state nature of closed equilibrium prevail. The formalism given by Simon typemodels of man (Simon, 1957) is carried over and changed over time. But learningremains unchanged under all the rationality axioms ad-infinitum. Yet, time is notan input of the production function of any kind. Time is treated as an independentvariable connected with the measurement of change. Time is not the cause of change.Time is simply the momentary recorder of change.

There is yet another superlative cause of the inability of technology, innovation,information, and knowledge as compounded effects in the realization of continuousabundance of resources. That is, in the Interactive Integrative Evolutionary-model(IIE), the dialectical process of evolutionary learning converges at every point intime to the goal of unity of knowledge and its constructive effect of the unifiedworld-system. This is a critical factor for the IIE-model. Without this critical natureof the formalism the uncharted evolution by the dialectical processes premised onlyon rationalism causes transaction costs of conflicts and exogenous technology toabound. Sustainability of the evolutionary system is lost.

Such is not the property of endogenous learning behaviour in the presence ofendogenous technology. Discourse and consensus in organizational, institutional,and social systems generate simplified perspectives of development, yet by the

162 8 Meso-economic Framework of Decision-Making

complexity of IIE-type decision-making. Transaction costs are thereby reduced(Williamson, 1979; Choudhury & Harahap, 2007).1

The consequential types of endogenous growth models that can be read andimplied from the works of Shakun (1988) and Romer (1986) are premised on compe-tition, and thereby, on competing behaviour. Such neoclassical consequences implythe continued forms of exogenous technological effects. At best, technology can beendogenous to the extent that evolutionary learning behaviour in such a case yieldssubsets individually governed by the neoclassical axiomatic characteristics. Exoge-nous dialectical effects are required to start off a new decision-making and rationalchoice phase. The optimality and steady-state conditions in such a world-system areused as fictive to solve problems, which though have not been designed by humanagents and organizations (Shackle, 1971).

In the nature of the evolutionary world-system studied in the literature, Myrdal(1958) and Schumpeter’s (Gaffard, 2009) innovation theory in economic devel-opment give better examples of evolutionary technological effects. Such modelsbelonging to organizational, institutional, and social behaviour and their conse-quences provide the concept of sustainability. But the question regarding the condi-tions of wellbeing, namely economic stabilization, employment and entitlement,ethics and discursively generated consensus, are not to be found in the inherentconflicting scenario of ethico-economic development paradigms that emerge fromthese models.

The organization embedded in such an evolutionary learning behavior of theeconomy at large transforms by the participatory nature of decision making betweeninstitutional members and the wider interactive network but without the discursiveprecondition leading to social consensus. The critical variables inherent in the ethico-economic cross-cultural and social choices of the total decision-making frameworkof the organization are interactively relational in nature. But these are interactive tothe extent of the drive of rationalism (economic rationality) of self-interest generatingand being driven by competition and segmented forms of reproduction of resourcesto take out the rationalist assumption of scarcity of resources.

1Check this result on continuity of resource generation in knowledge-induced continua of systems:Let resource function be R(θ) = R(x(θ)), where, x() denotes the vector of output, price, income,

technology and other pertinent variables.Now, dR/dθ = ∑

i (∂R(θ)/∂xi(θ)) · ((dxi(θ))/dθ) > 0 identically by each i. Consequently, thefirst order condition of optimal allocation of resources does not hold.

Furthermore, each xi is related by circular causation with xj and = F(x(θ)) in the form ofresources as input and output being both knowledge functions. Besides, the circular causationinterrelated system between (θ, x(θ)) is given by, xi(θ) = fi(xj(θ)), i �=j = 1, 2, …

But furthermore, if θ ∈ Rationalism (bounded and evolutionary economic rationality), thendR/dθ → ∞; or dR/d = 0, for exogenously segmented sequences of evolutionary systems.

Introduction: Some Definitions 163

IIE-Perspective in Evolutionary Learning

Returning back to the IIE-model, the phenomenon of continuous evolutionarylearning in unity of knowledge and its construction of the normative world-systempremised on unity of knowledge assumes an altogether different form. The IIE-model is critically driven by the method of circular causation. This method explainsthe inter-variable causality, each variable in terms of the rest. Such inter-variablecausality of each variable in terms of the rest of the variables gives the methodicalmeaning of unity of knowledge shown by complementarities between the variables.Knowledge, which remains continuous and never ending in the evolutionary learningbehavior of organizations that perpetually sustain themselves with innovation, tech-nology, and unifying linkages between the critical variables emanate from a certaintextual premise. This denotes the epistemological mooring of the entire methodologyand driving method emerging from and endogenously sustaining the IIE-system.

While this is an issue that remains an open search for discovery, its discoverywould mark the ultimate convergence to a particular ontological and practical world-view. By it all reasoned premises can be tested. Such a unique and universal episte-mological premise is unity of knowledge. It is governed by the universal praxis ofIIE-methodology and its method. The methodology combined with the method ofcircular causation is capable of explaining the differentiated and dissociative world-view of every other doctrine (rationalism). While such a knowledge-centered epis-temological worldview is found in the ideal case of the monotheistic law and itsapplication in the world-system, particularly in this chapter to organization, institu-tion, and society and their behavioural perspectives, the same kind of depiction isfound also in scientific theory (Einstein, undated; Edel, 1970).

Wellbeing Criterion

The methodical premise to encapsulate the unified methodological worldview is thewellbeing function. It forms the objective criterion function of the social entirety. Thisentirety comprises micro-cosmos and the totality of organizations, institutions, andsociety, along with the circular causation relations between them in both the fallenstate of the world-system, and the normative moral constructive possibility out ofthe episteme of unity of knowledge. The emergent sustainable evolutionary learningprocess with its objectivity of interactive social and economic relational becoming,establishes the relational idea of organic unity between the diverse variables andentities in decision-making.

The positivistic evaluation (‘as-is’) is followed by the normative evaluation (‘as-it-ought-to-be’) of the wellbeing function subject to the circular causation relationsin the selected critical variables yield the worldly signs of the nature of monotheistic,and thereby, symbiotic unity of knowledge by way of pervasive complementarities(participation) in thought and practice underlying the epistemic methodology and

164 8 Meso-economic Framework of Decision-Making

its application through the evaluation of the wellbeing function, subject to circularcausation relations between the variables. This totality of the methodical IIE-modelis the derivation from and projection of the sustained process of unity of knowledgeinto the details of the world-system. Organizations ought to display this spirit by wayof its discursively networked consensus by interaction. Institutions should show itby the complex networking of such participatory institutions driven by the properdefinition and aspirations of wellbeing. Society ought to show it by the complexaggregation of the organizational and institutions preference formation into dynamicsocial formation (Rawls, 1971).

The same idea of evolutionary learning can be equally applied, as per the symmet-rical methodology, to negative learning. Positive and negative learning are dialecticalforms of intellection in social formation. Adorno (2007, pp. 5–6) defines such a socialdialectical process as follows: “Dialectics is the consistent sense of nonidentity…..that whatever happens to come into the dialectical mill will be reduced to the merelylogical form of contradiction…. What we differentiate will appear divergent, disso-nant, negative for just as long as the structure of our consciousness obliges it tostrive for unity: as long as its demand for totality will be its measure for whateveris not identical with it. This is what dialectics holds up to our consciousness as acontradiction.”

Examples from the world of learning organization that examine heterodoxmodelsof cooperation is opposed to competition in forming social choices alongwith privateobjectives. Kim and Mauborgne (2005) study such contrary types of organizations.The competition model is the traditional neoclassical and mainstream economicand management models of competition and self-interests arising from scarcity ofresources, and all the consequences that are carried along with it. This is the red-ocean strategy of the capitalist business and management world-system. On thecontrary, there is the blue ocean strategy (social extensions formed by networkingandparticipation) that defeat the objectives of the red ocean strategyby its cooperativeand coordinative strategic future worldview.

The evolutionary learning objective of sustainability by the method of evaluationand regeneration of the unifiedworld-system inwhich organizations, institutions, andsociety play their symbiotic roles is the wellbeing function premised in epistemicunity of knowledge.The networked organization, institutions, and social order are thecause and effect in inter-causal circularity between the participatory (complemen-tary) variables denoting ethical, economic, and social decision-making. The resultingsymbiotic results overarchacross embedded domains.The emanatingmethodology inits entirety with methods and inferences, and normative directions, uses a substantivemeaning of endogenous knowledge-centered compounding between innovation andtechnological change.

Introduction: Some Definitions 165

The Analytical Nature of Endogenous Opposed to ExogenousEffects in a Firm’s Production Function

The different effects of endogenous as opposed to exogenous relations in thewellbeing objective of these opposite kinds of organizations can now be formalized.

The firm as an organization is a productive organism. The difference between thered-ocean and blue-ocean is this. The variables, and thereby the choices of productiveorganisms are induced by the inputs of knowledge and social precepts, such as ofpricing, marketing, avoidance of impediments from the road of the underprivileged,distribution and just ownership of resources, wealth, and income, and opportunitiesand the like. Participatory empowerment, entitlement, discursive cooperation, andexpansion of the resource sharing bases along with the consciousness and policiesto engender such possibilities form the inducing factors of productive choices. Afurther example of such kind of contributions by productive firms as organizations inthe midst of institutionalism and social correctness is the establishment of dynamicbasic-needs regimes of development. All the elements of the endogenous processesof the IIE-methodological worldview now enter lock, stock, and barrels into themodel and dynamic basic-needs regime of development.

Yet another example in the structure of organizations, institutions, and social orderis the multidimensional unitary model of stakeholder participation, beyond simply ashareholder corporatemodel. In the imminentmultidimensional stakeholders ”modelof corporation the interrelated and coordinated interests of shareholders with thecommunity and society in the light of the wellbeing objective criterion is projected.The emergent social model of wellbeing and development, justice, equality, andunity by discursive participation is formalized according to the evolutionary learningsystem and cybernetic model that spans continuously both intra-system (firm) andintra-system (community, society and network). Such amodel is dealtwith byLozano(2000, 2002).

Formalism of the Evolutionary Learning Wellbeing Functionin Unity of Knowledge

Here is a formalismof the production function induced by epistemic knowledge-base,{θ}. {θ}-values denoting unity of knowledge and its capability to establish a unifiedorder of organization, institutionalism, and social order, denote the ethico-economicand social variables as consciousness that is endogenously generated.

Y = F(K,L)[θ], (8.1)

166 8 Meso-economic Framework of Decision-Making

where,

Y denotes output;K denotes capital stock as factor input;L denotes labour input as factor input.

Each of all these variables is induced by knowledge to denote evolutionary learning.Consequently, the production function denoted by (8.1) loses all its properties of

neoclassical model of optimization, steady-state equilibrium, marginalist trade-offbetween labour and capital, and assumption of resource scarcity.

We can now express the production function and its derived factor demandfunctions by expressions (8.2)–(8.6).

Y increases as a result of learning (θ1) with L. By the endogenous relationshipof circular causation between the variables denoting the implication of unity ofknowledge by participation (complementarities) we write,

K = K(θ2,L(θ1)). (8.2)

Likewise, it is true of L in terms of K,i.e.

L = L(θ1,K(θ2)). (8.3)

Thereby,

Y = F(θ1, θ2,K(θ2),L(θ1)) (8.4)

Also,

θ1 = f1(θ2,K(θ2),L(θ1) ; (8.5)

θ2 = f2((θ1,K(θ2),L(θ1)) . (8.6)

Expressions (8.1)–(8.6) altogether denote the endogenous growth model. By thepervasively complementary effect of the knowledge-variable and the simulativenature of evolutionary learning in the consequential system, the neoclassical proper-ties are annulled. These equations explain the recursive relationship that do or oughtto define the inter-relations between critical variables of the knowledge-inducedendogenous production function. In one sense, the power of owners of capital denotedby K(.) is made to depend upon a coordinative organizational arrangement betweenthe institution of labour force and the owners of capital. Harmony between thesetwo agents of production system spells out harmony in collective bargaining andcoo-operative organizational behaviour. Lack of positive complementarities from

Formalism of the Evolutionary Learning Wellbeing Function in Unity of Knowledge 167

the direction of K(.) and L(.) and from the direction of L(.) and K(.) recursivelyimply the two-pronged productive and co-operative relations that ought to exist in atwo-agent game theoretic move. Besides, these variables being knowledge-inducedin the sense of unity of knowledge, and thereby IIE-relations, show that the gametheory if a co-operative game with knowledge induction in the payoffs to labourand capital out of such co-operative game-theoretic moves (Osborne & Rubenstein,1994; Shubik, 1989).

Besides, the induction of the economic variables by (θ1, θ2) introduces ethical,social, and discursive social, economic, policy and institutional impacts on theresource allocation rules. Such induction of the socioeconomic variables makes themof the ethico-economic type. The neoclassical conceptions cannot hold any more.Every point of the knowledge-induced production possibility surface experiencescontinuous perturbations caused by evolutionary learning. Such continuous varia-tions in the historical lives of organizations and the continuity ofmathematical notionof organization of decision-making are necessary in order to bestow freedomof indus-trial democracy in labour-capital discourse to set the agreements of the IIE-processmodel in organizational behaviour. Coercion in organizational decision-making isthus avoided and a discursive environment of co-operative decision making is upheldwith different ordinal vales representing respective agent-specific knowledge-values,θ1 and θ2. This is true in the continuous and continuum frameworks intra-system andinter-systems. As a result, the concave to the origin production possibility surfacecannot exist anymore. Scarcity of resources as axiom, and consequentially optimiza-tion behaviour and steady-state equilibrium cannot exist anymore. Therefore, boththe neoclassical property of steady-state equilibriums and their long-run ‘global’properties are annulled. Hicks (1979) had pointed out this problem of neoclassicalequilibriums. Finally, no marginal substitution formula, and no price relatives canexist in such a case of evolutionary learning.

Finally, the nature of the output and resources (as proved in a footnote earlier)are knowledge-induced out of the dynamics of IIE-processes forming consensusbetween all the variables. The output and resource variable now figure out as theinstruments of cause and effect in the co-operative decision making between thefactor inputs of production. The final rounds of coordinated and co-operative endoge-nous and institutional (policy and ethico-economic behaviour as consciousness) areestablished and the evolutionary learning organizational life sustained by the role ofknowledge-induction.

A Generalized Form of the Structure and Functionsof Evolutionary Learning Organization, Institution,and Social Order

Generalization of the above formalism takes us to the design of the institutional andsocial super-organizational structure. Here is that symbiotic systemic outlook. This is

168 8 Meso-economic Framework of Decision-Making

the openness by evolutionary learning of the increasing set of influencing variables,and thereby, the pervasiveness of complementarities between the knowledge-inducedvariables.

The example of such an organization is a participatory Islamic enterprise (Choud-hury&Hoque, 2006). Its objectives alongwith the emanating structure and functionsare premised in unity of knowledge and its organizational, institutional, and socialinduction of unity of knowledge.

Let us define the following vector of variables of the wellbeing criterion that isnow evaluated (i.e. ‘estimation’ followed by ‘simulation’) by the wellbeing function,subject to the system of circular causation variables:

x(θ) = {x1, x2, x3, x4, x2, x6, y1, y2, y3, y4, p1, p2, p3, p4; p2

}[θ] (8.7)

[θ] means induction of each and all of the variables within {..}.x1 denotes employed labor force in the co-operative enterprises.x2 denotes capital input employed as complementary factor to x1.x3 denotes output in accordance with the ethical correctness. This is determined

by the objective and purpose of the Islamic law, known as maqasid as-shari’ah.x4 denotes profits in accordance with maqasid as-shari’ah.x5 denotes shareholders’ wealth for safeguarding and enhancing productive activ-

ities in accordance with maqasid as-shari’ah (stakeholders model).The techno-logical and innovation effects in the light of the knowledge-induced objectivecan be included.

x6 denotes equitable distribution of the organization’s productive resources, whichtakes place by the use of participatory trade-related financing instruments in theabsence of interest-bearing business operations.

y1 denotes participatory financing instrument of profit-sharing.y2 denotes financing instrument of equity-participation.y3 denotes the financing instrument of mark-up pricing in traded goods over time.y4 denotes other Islamic financing instruments (Rosly, 2005).p1 denotes policy variable by discursive process. Such a discursive experience

also seeks to find possibilities for complementarities between the members ofx(θ)-vector.

p2 denotes number (ratio) of co-operative enterprises existing in inter-firmnetwork.p3 denotes number (ratio) of co-operative enterprises existing in inter-sectoral

linkages.p4 denotes human resource development expenditure.p5 denotes transparency and disclosure in firm ”s accounts, investment financing,

and shareholders ”profitability.

Each variable is induced by the discursive knowledge-flows denoted by {θ}-values.Such an induction transforms the variables into ethico-economic variables by theepistemic reference of unity of knowledge. In this vector expression the differentiatedvalues of θ1, θ2, are replaced by the common limiting value of these discursive

A Generalized Form of the Structure and Functions … 169

parameters. Thereby, the probability limit of the two discursive knowledge variablesleading to one consensual unity of knowledge is defined by, plim{θ1 · θ2} = θ.

An Example of Evolutionary Learning by Unity of Knowledge:The Islamic Social Wellbeing Criterion of the Corporation

The principal objective of the Islamic organization is to simulate its shareholders’profits within the stakeholders’ purview. Such a goal enables the firm as organiza-tion to abide with maqasid as-shari’ah. As exemplified above, the vector of variablesspans over economic, social, ethical and policy variables. The wellbeing function isevaluated first by estimating the circular causation relations to test the existing natureof complementarities between the maqasid-variables, subject to circular causationrelations. It then simulates by policy and program implications, the possibilities toimprove the levels of complementarities between the variables. The choices so deter-mined form the ethicalmoral social choices according to the progressive actualizationof maqasid as-shari’ah. Because of its moral and social choice nature, such a well-being function is equivalent to serving al-maslaha-wal-istihsan, meaning wellbeingfor the public purpose (Masud, 1995). The emergent wellbeing function is then seenas the objective criterion to measure the degree of simulated unity of knowledge inthe organizational system and its inter-systemic complementarities realizedby epis-temic reference to unity of knowledge. One needs to note that maqasid as-shari’ahsimply defines the principal goals and objectives of the shari’ah. Yet the shari’ahconsequences that follow do not necessarily reflect abiding perspective of epistemiconeness. The shari’ah functions thereby remain revisable, changeable, and debatablein the idea of ‘shari’ah-compliance’. It is just the purpose and objective (maqasidas-shari’ah) that remains permanent. Yet these too can be extended to an expandeddomain to acquire the epistemic focus of unity of knowledge.

The wellbeing function, W(x(θ)) now yields the formal evaluative model below.

SimulateθW(x(θ)) (8.8)

subject to circular causation relations improvising complementarities,

Zi = f′′i (θ, z′′i )[θ], i �= i′′ = 1, 2, . . . , 14 (8.9)

θ = f(z(θ)) (8.10)

The following particular form of the non-linear and endogenously interrelated well-being function system in the variables of vector (8.1) can be used to incorporate allthe required properties of endogenous and complex characteristics of IIE-model:

170 8 Meso-economic Framework of Decision-Making

W(x(θ)) = A(θ) · �ixaii (8.11)

xi = Ai(θ) · �i′′ = 114xi′′ai′′ (8.12)

θ = B(θ) · �i=115x′′ ai

i (8.13)

The expressions (8.8)–(8.13) emulate the meanings underlying the formulation ofexpressions (8.1)–(8.7). Each of the variables, and thereby the representative agents,being knowledge-induced according to the episteme of unity of knowledge is simu-lated for better levels of co-operation, co-ordination, and thereby participation andcomplementarities in evolutionary learning organizations. The end result is to trans-form the organization not merely into a decision-making medium of production andstrategy, but also as a social organization in the midst of consciousness. In sucha comprehensive understanding of organization and organizational behaviour, theobjective of wellbeing plays the central role for evaluation of the consciousness ofparticipative behaviour, likewise complementary relationship between the ethicallyselected variables.

How the Evolutionary Learning Parametersof Knowledge-Flows {θ} are Generated and Assigned?

θ-values are generated from the recorded socioeconomic variables or are surveyedfor data on respondents’ attitudes. Such generated θ-values reflecting the prorateddegree of complementarities along the column socioeconomic x(θ)-variables arethen averaged across the their ranked values in columns of the generated θ-values toyield the required generated data for such ranks as knowledge (unity of knowledge,θ-values) corresponding to the columns of observed variables.

With such generated θ-values, the table of all required data by socioeconomicvariables, x(θ) and generated θ-values is complete. The estimation and simulation inthis order of the whole system of Eqs. (8.8)–(8.10) or equivalently of (8.11)–(8.13),can be carried out. Thereby, the detailed statistical work can be completed, yieldingthe comparative estimated (actual) and simulated (normative, policy-induced) coef-ficients and the corresponding predictors of the x(θ)-variables in the structuralregression forms of circular causation equations.

Expressions (8.11) and (8.13) are monotonically related, as they are ‘similar’functions. Therefore, expression (8.13) represents the monotonic positive transfor-mation of the wellbeing objective in unity of knowledge with possible degrees ofcomplementarities between θ-variable and x(θ)-variables. Expressions (8.10) and(8.13) represent the empirical version of expression (8.8) and (8.11), respectively.

A Generalized Form of the Structure and Functions … 171

Therefore, there is no need for independently estimating and simulating expres-sions (8.8) and (8.11) once the systems (8.9)–(8.10) or (8.12)–(8.13) are estimated,respectively.

According to the Islamic methodological worldview in the framework of unity ofknowledge according to the foundational epistemological sources of Islamic thought,and thereby, organizational behaviour. The organizational model presents an intrinsicmind-set of the Islamic organization. The imminent system diagram here can beshown in the light of epistemic oneness arising from the foundation of Islamic belief.This pervades the organizational structure, function, and behaviour in the Islamic caseof its methodological worldview.

Dynamic Preference Formation in Islamic CorporateRelations

Evolutionary learning as phenomenology in respect of unity of knowledge, andprevailing across continua and continuously over time, gives rise to dynamic pref-erences. Such dynamic preferences form aggregate interactive and evolutionaryconsensual preferences at the next and progressive higher levels of social entities—fromorganizations to institutions to society at large.Dynamicpreferences by the logicof failure in steady-state due to complexity, deny all the postulates of neoclassicaleconomics.

Now to formalize we denote {℘ ij(θi)} as (θ)-induced organizational preferences;‘i’ denotes a given decision-making process. ‘j’ denotes jth-numbered θ-inductionof socioeconomic variables; i = 1, 2, … n; j = 1, 2, … m. The evolutionary learningvector of variables by knowledge-induction is denoted by, {θi, xij(θi); ℘ ij(θi)}. Thismeans interactive preferences in the milieu of organizational decision-making (i),each of these processes involving j-number of simulated variables (j). Interaction(∪i) is explained by the mathematical union of intersection of knowledge and spaceand time domains of causation of events certified by consensus (∩j). Thus we denotealearning process denoted by (Ps)= [∪i∩j{θi, xij(θi);℘ ij(θi)]s. These aspects of orga-nizational decision-making model present the perspective of unitary and discursivelearning model.

The formalism underlying all the imminent representations in the context ofdynamic organizational preferences with symbolism means that collective deci-sion making is realized by internal dynamics connected inseparably with externaldynamics of conscious decision making. Internally, the various departments of theorganization form of discursive agents for internal consensus formation by the samekind of limiting knowledge premised in unity of knowledge that we explained earlier.That is, plim{θ1, θ2, … θn} = θ, with i = 1, 2, … n number of departments (agents)in IIE-decision making. θ denotes the consensual value of knowledge premised inunity of knowledge.

172 8 Meso-economic Framework of Decision-Making

External dynamics joins with the internal dynamics via the stakeholder modelof organizational decision making. Thereby the IIE-model is extended to this largerset of agencies, relations, variables and ethical choices as mentioned above. Themathematical representation in terms of (Ps) = [∪i∩j{θi, xij(θi); ℘ ij(θi)]s is therebyextended to stakeholders. So also the degree of complementarities and participationextended to cover the stakeholders by extending plim{θ1, θ2, … θm} = θ, with i = 1,2, … m > n. The conscious organizational behaviour as truly an entity in industrialdemocracy becomes a social practice and the consequential evolutionary learningorganization a social entity with ethico-economic effects.

At the end, the definition of a conscious organization and organizational behaviourwith ethical choices arises. Such an organization is now seen as the strategic economicentity that galvanizes the ethical choices, strategies, and decision making across thesocial spectrum as stakeholders. The choices determined in the particular case ofthe Islamic organization and organization behaviour is determined by the discoursedinjunctions of the Tawhidi methodological worldview.

In the end, the ethico-economic organizational behaviour in themidst of the aboveextensions is defined by the following relations: (Ps) = [∪i∩j{θi, xij(θi); ℘ ij(θi)]s;plim{θ1, θ2, … θm} = θ, with i = 1, 2, …m > n. The meaning here conveys the mostextensive degree of participation and complementarities between agents and theirrepresented variables of maqasid-choices. Such choices simulate the wellbeing func-tion in a discursive environment of cause-effect circularity explaining the dynamicsof unity of knowledge. The wellbeing objective was given in expression (8.8)–(8.13).This model is now further extended to society at large, etc.

Questions Relating to Islamic Evolutionary Learning Modelof Organizational Behaviour

Is the organizational behavioural model truly unique and universal for all decision-making systems? At this point we can render a brief answer to this question.Firstly the concept of uniqueness and universality issues that the Islamic epistemicphenomenology of unity of knowledge invokes is this: The imminent IIE-modelexplaining the methodology and method of evaluation of the unity centred world-system, i.e. the organization, institution, and social order can equally explain unitaryphenomenon and differentiated social and economic phenomena. So it is possible toderive the postulates of say neoclassicism from the degenerate non-learning (call this‘de-knowledge’) framework of the IIE-model. But on the contrary, neoclassicism,and for that reason, any of the other paradigms, some of which we have covered inthis chapter, cannot explain the nature of the pervasively unified methodology andworldview of unity of knowledge. Thereby, the question of uniqueness and univer-sality comes to a head. One can refer to details on these topics in Choudhury’s work(2006) in respect of understanding reality oppositely between occidental epistemeof rationalism and the Islamic epistemology of unity of knowledge.

Questions Relating to Islamic Evolutionary Learning Model of Organizational Behaviour 173

The Quràn refers to this episteme of oneness as Tawhid. It stands for theentire meaning of monotheism concerning the oneness of God, the divine law,and the unified world-system. The world-system is configured by its generality anddetails (e.g. evolutionary learning organization and organizational behaviour). Sucha configuration is given the meaning and evidences unravelled by application of themonotheistic law (i.e. by unity of knowledge).

In the neoclassical and rationalist world-system, which are carried over to orga-nizational, institutional, and social behaviour, the knowledge-induction of the vectorof variables concerning the generality and specifics of the organizational world-system do not exist.2 In other words, there is no methodology in such paradigmsto transform the social order and all details within it from the domain of resourcescarcity, competition, self-interest, and marginal substitution between competingvariables and agents, into a social world-system governed by unity of knowledge.If such a social and ethical transformation was even tried in the rationalist method-ology, it will break down the neoclassical postulates to dysfunction. Neoclassicismthen disappears into methodological impossibility for transforming a differentiatedworld-system into a socially participative world-system by unity of knowledge (asunder monotheism).

Even if resource regeneration is considered in neoclassical economics, the scarcitypostulate is not abandoned on logical grounds pertaining to neoclassicism. That isas the footnote3 here points out, organizations with satisfycing behaviour must stilldepend upon independently invoking given technology to restart resource formationand utilization. Continuity of resource reproduction is thereby abandoned (Simon,op cit).

Likewise, in the pure dialectical form of evolutionary phenomenon with noclosure, Marx’s ‘over-determination’ theory of dialectical choices (Resnick &Wolff,1987) and Popper’s (1965) conjectural history of falsification and perturbations

2Note this explanation on the impossibility of continuously regenerating processes as given below.At the boundary of the two processes shown, technological induction by T remains exogenous.Contrarily, if T becomes endogenously regenerated then optimization fails to exist. This defies thepostulates and consequences of optimization, steady-state equilibrium, opportunity cost theory, andassumption of scarcity of resources. Hence the objective of wellbeing as technically defined in thispaper is annulled.3

Process 1 (P1) Process 2 (P2)

[Resource → Output → Inputs →]∣∣T[NewResource(R′) → etc . . . .]

In the case of endogenous relationship, P2 = f(P1), f being a continuously differentiable func-tional relationship between P1 and P2, which are functions of (R, O, I) and (R’, O’, I’), respectively,as shown. That is P2 is continuously regenerated by P1 etc. within system relations.

We write, dP2/dP1 = (dP2/dT) · (dT/dP1). This can take two possible signed values: (1) T isexogenous. Then dT/dP1= 0. Hence, dP2/dP1= 0; implying P1 and P2 are relationally independentas exogenous processes. (2) T is endogenous. Then, dP2/dP1 �= 0. In this case an optimal process atthe connection of T does not exist or is evanescent. The functional relationship is then given by, P2= f1(P1, T); P1 = f2(P2, T); T= f3(P1, P2). This is the kind of wellbeing organic interrelationships.They are studied by the circular causation method that we have presented in this chapter.

174 8 Meso-economic Framework of Decision-Making

bedevil the possibility for predictability and objectivity. Such approaches leavethe imminent models of dialectics incapable of solving any problem. Organiza-tions governed by such kinds of dialectical epistemologies remain utterly uncertain,volatile, and ethically benign without conscious direction beyond rationalism.

Conclusion

The theme of this chapter is a contribution in the direction of evolutionaryeconomics and organizational behavioural theory of decision-making. This academicarea is found to be deeply ingrained in epistemological questions. The episte-mological questions arise from the side of occidental worldview and the Islamicmethodological worldview of unity of knowledge. This leads into comparative andcontrasting perspectives of organizational realities from the two vantage points andepistemological thinking.

This chapter has presented various models in the occidental perspective and theprominent one in Islamic context that is premised on the qur ”anic episteme of unityof knowledge. This epistemological foundation is referred to as the monotheisticmethodological worldview of Tawhid as the qur’anic law. The monotheistic lawpresents its evidences of unity of knowledge in the details and particulars of theworld-system. The implications of such contrary episteme lead into critical examinationof the themes of consciousness and ethico-economic consequences (Sen, 1988), butnow focused on organizational behaviour, which were unable of examination incontemporary literature on organizational behaviour. Thus by integrating consciousand ethical organizational behaviour with evolutionary learning model of unity ofknowledge an altogether new field of evolutionary economics of organization andorganizational behaviour in unity of knowledge has been opened up by this chapter.Many relevant issues, most pronouncedly of decision making, are studied in the lightof the the greater domain of organizations network within institutions and societyat large. The business organization in this network is thereby studied as a socialorganism. Various models underlying such decision-making are referred to.

In the end, the possibility of a truly ethico-economic formof organization andorga-nizational decision-making as an epistemological issue is examined in the context ofunity of knowledge to be found in Islamic methodological worldview. This too is acontribution in the field of Islamic organizational theory of economics as a learningsub-system of the human world-system. Islamic economics has not at all touchedthis area in the light of the episteme of unity of knowledge forming the intellectualfoundation. In this chapter, this kind of organization and organizational behaviourwere studied by invoking the episteme of unity of knowledge and its symbioticimplications in the totality of the unified world-system as a distinctive contributionto the field of Islamic economics as well as general evolutionary learning theoryin mainstream intellection. Substantive differences between the Islamic episteme ofunity of knowledge and the occidental episteme of rationalism were found to persist.Such differences denied the concept of universality and uniqueness of a worldview to

Conclusion 175

Occidentalism. Whereas, it made it possible in the Islamic epistemological contextbut remained distanced from shar’ah as understood in sectarian divide and in theexisting understanding of Islamic economics.

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Chapter 9Endogenous Monetary Transmissionby Meso-Economic Model

Abstract This paper is a continuation of the recent papers by (Choudhury, ACRN JFinance Risk Perspect, Special Issue Soc Sustain Finance 6:37–52, 2017), (Choud-hury, ACRN J Finance Risk Perspect, Special Issue SocSustain Finance 4:63–80,2015), and (Choudhury andHoque, J EconCoopDev 39:143–162, 2017) on the topicof endogenous nature of money (Choudhury, Money in Islam, Routledge, London,England, 1997) and monetary transmission as micro-money in Islamic financialeconomics. These papers have projected an Islamic economic theory of endogenousmoney that pursue the financing of projects in the real economy by bringing suchproject-specific spending to attain several much wanted goals of economic stabilityand performance. Among these is the 100% circulation of bank-savings that banksotherwise hold back into the liquid form of spending. A 100% Reserve RequirementMonetary System is maintained in Islamic monetary transmission and circulationwith appropriate methodology and policies. Consequently, debt reduces to zero; themarket transformation by the diversification of projects, the portfolio diversificationof financing instruments to mobilize monetary units as micro-money into projects,and the increase in stakeholding altogether make the real output level statisticallyelastic. Thereby, prices stabilize in the absence of all forms of interest rates. Theend result is the generalized inter-causality among the endogenous inter-variablerelations.

Ontological Effect of Money and Real Economy Variables

In Chap. 1 we discussed about the nature of money and its endogenous economicrelations in the context of the methodical approach of Islamic economics as meso-science. In this chapter we formalize a model and empirically test its application andimplication within the theory of meso-economics in reference to the primal ontologyof Tawhidi unity of knowledge in the money-real economy example of a world-system. Money is thereby explained as the currency circulatory value equating to

Joint author, Dr. NirDukita Ratnawaty, is Lecturer in the Faculty of Economics and PostgraduateProgram of Islamic Economics and Finance, Trisakti University, Jakarta, Indonesia.

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_9

177

178 9 Endogenous Monetary Transmission by Meso-Economic Model

spending. And in the context of θ-value implying choices of spending in the goodthings of life and avoidance of the un-recommended ones (e.g. debt, interest riddenchoices), we write the meso-economic equation of exchange as,

S(r/i,Q)[θ] = (M(r/i,Q)∗v

)[θ] = (p · Q)[θ] ⇒ 100% with v(θ) → 1 (9.1)

The dynamics is conveyed by the force of θ-value increasing in the monetarycirculation.

Conversion of bank-savings into money is circulated fully via projects-specificspending by financing instruments in the real economy. In the contrary case whenproject-specific spending is not fully mobilized in the θ-induced real economy thensavings linger as bank-savings. Bank-savings as unmobilized financial resources areunproductive in nature. It stays in the interest of shareholders through the bankingsystem for the functioning of interest-earning activities. It then becomes to the bankand shareholders’ interest to hold bank-savings as deposits forming liquidity. Theliquidity is then not mobilized into the real economy for productive gains. Contrarily,when all financial resources aremobilized in the productive and ethically induced realeconomy, the financial sector and the real economic project-specific sector equatein value and nature of resource mobilization. Consequentially, Eq. (9.1) holds. Inthis expression, S denotes total spending. ‘r’ denotes rate of return in the real sectormobilization of savings and money circulating via financing instruments. ‘i’ denotesrate of interest. ‘r’ and ‘i’ may be in nominal or real terms. (r/i) is relative return fromproductive spending relative to the unproductive rate of interest. ‘Q’ denotes realoutput. M denotes real quantity of money as a function of the real values of Q and r/i(Cagan, 1989). ‘p’ denotes the price level. ‘v’ denotes the velocity of circulation ofmoney. Each of these variables and thereby the functions as shown is θ-induced in thesense of ethical endogeneity by reference to the primal ontology whereby, θ ∈ (�, S).The velocity ofmonetary transmission into the real economy is inter-causally inducedby θ affecting the speed of adjustment of v(θ) → 1, as the circulation of a quantityof money in the above-mentioned relations equates with bank-savings liquidatedinto real-economy financing (spending) along the evolutionary learning processesof interaction and integration processes caused by unity of knowledge between allthe variables of Eq. (9.1). Note also the following conditions that the spending (Sp)-monetary (M)-real economy (Q) variables will hold in the corresponding wellbeingfunction denoted by W(Sp, M, Q, θ)[θ] = W(Q, r/i, p, v, θ)[θ] in the followingequivalent systems of inter-causal relations in evaluating the wellbeing functionsgiven in the two forms in expression (9.1) and (9.2):

Evaluate W(Sp2M2Q)[θ] ⇔ Evaluate W

(Q2r/i, p2v

)[θ]subject to Sp = f1(M,Q, θ)[θ] subject to Q = g2

(r/iep2v, θ

)[θ]Q = f2(Sp,M, θ)[θ] (r/j) = g2(Q, p, v, θ)[θ]M = f3(Sp,Q, θ)[θ] p = g3(Q, r/i, p, v, θ)[θ]θ = F(Sp,M,Q)[θ] v = g4(Q,r/i,p, θ)[θ]

θ = G(Q,r/i,p,θ)[θ]

(9.2)

Ontological Effect of Money and Real Economy Variables 179

dW/dθ = + + + +(∂W/∂Sp)· (dSp/dθ)+ (∂W/∂M)· (dM/dθ)+

dW/dθ = + + + +(∂W/∂Q)· (dQ/dθ)+ (∂W/∂(r/i))· (d(r/i)/dθ)+

+ +(∂W/∂Q)· (dQ/dθ) > 0 identically by terms

+ + + +(∂W/∂p)· (dp/dθ)+ (∂W/∂v)· (dv/dθ) > 0 identically by terms

The underlying implication of evolutionary learning effect in and across IIE-learning processes of events spread out over History HH sustains. This foundationalproperty is the Tawhidi ontological derivation. The signs as shown are thereby self-evident. The same result holds up for the case of the mafasid function. In the case ofthe mix of maslaha (wellbeing) and mafasid (harmful) these functions are disjoint.Alternatively, the variables can be arranged as ratios of each other to show the positiveeffects of θ-variable on the ratios like (Truth/False)-ratios as constructed variables.The circular causation relations are derived accordingly.

The estimated results of circular causation between the variables in the casesof maslaha and mafasid are expected to be opposite to each other. For instance,the velocity of money circulation can be proved to be high in an exclusive finan-cial economy1 without due regard to the possibility of the financial economy tointeract and integratewith the real economy. Thus the importance of choice of activitybetween the financial and monetary economy to attain wellbeing by complementar-ities between the variables like (M, p, Q, r/i, v) is not a policy requirement. Besides,in much of existing economic literature ‘v’ is treated to be constant. That is not so inthe meso-economic monetary relations of Islamic economics. ‘v’ is variable due tothe dynamics conveyed by θ-effect in evolutionary learning. The role of knowledgeinduction in the complementary inter-variables causality by the epistemic θ-valuesremains benign to meso-economic performance and potentiality.

Monetary Policy by Monetary Transmission Mechanismin Meso-Economic Study

The institutional structure to realize the policy simulated nature of money and realeconomy in Islamic perspective along with the various appertaining variables of sucha relationship results in the monetary policy of financial transmission. The criticalpoint to note here is the conception of quantity of money in relation to the centralmonetary authority and the private banks. In the case of Islamic ontological basis

1Friedman (1989).

180 9 Endogenous Monetary Transmission by Meso-Economic Model

of θ-induction of the variables and their circular causation relations the conceptionof money, quantity of money, and simulated circular causation relations to attain afitting inter-causality for establishing social and economic stability at large betweenthe central bank and Islamic banks need to be studied.

Firstly, the functions of money in the real economy with θ-effect of evolutionarylearning by unity of knowledge implies that the quantity of money is simply a unit ofexchange. But it has no exchange value; for there is no moneymarket for exchange atthe financial price of interest rate (riba). The quantity ofmoney cannot be created nowtomeet future demand, for the intertemporal valuation of exchangeable is determined‘nearest’ to the point of occurrence of events, E(θ), along themulti-dimensional spaceof History, HH. The quantity of money in the Islamic case thus does away with theidea of demand and supply of money by a price of its own exchange,2 which is therate of interest on financial instruments that save and mobilize money incompletelyinto the financial economy. Now instead of the quantity of money being a function ofinterest rate, output, and prices, all over time, the profitability of money is determinedby the return relative to the imperfect Islamic case having learnt reduction in interestrate (i) (i.e. r/i), prices (p) and output corresponding to projects that money pursues.Thus, M(θ) = M(Q, p, r/i)[θ], with dM(θ)/dθ > 0 as noted in expression (9.1).

The so-called ‘equation of exchange’, Mv= p · Q, meaning the volume of moneyby its speed of circulation across transactions equals the macroeconomic conceptionof spending as the value of total output is replaced by a different meaning of the quan-tity of money in circulation in Islamic meso-economy. Monetary transmission in thereal economy of the ontologically induced Islamic meso-economy requires endoge-nously embedded consciousness of a market-oriented transformation, as of projects,to heighten the absorption of money circulation. Thereby, v(θ) → 1 as θ↑ ∈ (�, S).Within this transformation evolutionary learning process there lie great questionson the nature of money and money-real economy relations engaged by the centralbank and the commercial banks. In the open economy the underlying dynamics ofexpression (9.1) involves issues of money-real economy in the Islamic world nation

2In fact, in an ethicizing economy in the face of phasing out of interest rate and its replacement by therate of return with θ-deepening, complementarities between simultaneous opportunities increaseand strengthen. Thereby, in the money-real economy context with, M = M(Q, r/i)[θ], dM/dθ =(∂M/∂Q) · (dQ/dθ) + (∂M/(∂r/i)) · (d(r/i)/dθ) > 0 identically by terms.

The underlying complementarity between M and Q in the goods and money choices definesthe wellbeing function as, W(M, Q)[θ]. For the wellbeing objective to attain the financial sectorand the goods sector in the goods things of life (caused by θ-induction) are inter-linked by circularcausality between M and Q. Consequently, the rates of return in Q(θ) and M(θ) are the same, ‘r(θ)’as opposed to interest, ‘i’ in the case of monetary-financial prices earned in the financial sector nothaving complementary linkage between M and Q, i.e. between Savings (S) and Production (Q).Thereby, the prices of the productive sector (r) and the rate of interest of the financial sector as neo-classical substitutes of each other yield the relative price (r/i) tomark themarginal rate of substitutionbetween the productive sector and the financial sector. This is the idea of exchange between buyingand selling of M in substitution of the buying and selling of Q. Exchange is therefore linked withrelative prices of goods and services that exist in substitution and thereby competition, negatingthe complementary relational system. The concept of exchange in any market of the endogenouslyinter-related causality between the good things of life is untenable.

Monetary Policy by Monetary Transmission Mechanism in Meso-Economic Study 181

(ummah). A new financial architecture3 is thus born out of the ontological foun-dation of (�, S, θ, x(θ), t(θ)) and its application. The efficacy of the money-realeconomy complementarities is established through the evaluation of the wellbeingfunction, subject to the inter-variable causality relations as explained in expression(9.1). Monetary transmission into the real economy is attained at heightened levelsof effectiveness when expression (9.1) upholds.

Monetary transmission in the real economy in accordance with the Tawhidiontological premise as explained, establishes the evolutionary learning equivalencebetween the quantity of money and its meso-economic spending across projectsunder θ-impact. This is the basis of conscious choice-making in the Islamic meso-economy. The meso-economy learns under the embedding by θ-induction of thevariables of the wellbeing function. Thereby, the meso-economy and its institutionaland instrumental categories learn simultaneously in the framework of cause and effectof inter-causality. A resulting transmission mechanism is then conveyed by expres-sion (9.3) in view of money-commodity-money relationship of resource transfer inthe economy-wide sense of the aggregate effect of private sector projects4:

[(�,S) → θ] → Money (θ) → x(θ) : inter-causal variables → Money(θ) → [(�,S) → θnew] → continuity (9.3)

Expression (9.1) applies here

⇔ v(θ) → 1 as θ ↑

The quantity of money equation in the form, Mv = p · Q, Q in physical units ofsupply of output, results in the limiting form of ‘evolutionary convergence’ to eventsE(θ) along HH:

M• + v• = p• + Q•

with M• → p• for economic stability;

v• → Q• = g, rate of growth of output.When v• → 1, g = 100%, meaning full capacity of economic growth, but only in

the sense of evolutionary learning in the Tawhidi ontological sense with its epistemicimplication.

The conclusion then is that, progressive evaluation of the wellbeing function asin expression (9.1) sustains the stabilization of economic performance across theknowledge, space, time dimensions of E(θ) ∈ HH.

There are important social implications relating to endogeneity of ontologicalissues linked with the economic ones of the above-mentioned relations. The fact ofprice stabilization with the perfectly elastic growth of the economy as a permanentphenomenon of the money, financing (spending), and real economy circular relations

3Choudhury (2010).4Heilbroner (1986).

182 9 Endogenous Monetary Transmission by Meso-Economic Model

in respect of their endogenous inter-causal relations,means that the economic integra-tion of this type has feedback with a life-fulfillment needs-economy and an increas-ingly privatizing economy. In the case of the macroeconomic general equilibriumsystem, this kind of adjustment is equivalent to an elastic form of non-inflationaryeconomic growth and the complementary relations between aggregate demand withpredominating spending (fiscal) stimulation and monetary policy induction.5

The project-specific expansion of monetary transmission complementing with thefinancing activity causes output expansion. The results then are themarket dominatedtransformation with public sector discursive coordination. Thereby, output expandsalong the intersection of the resulting aggregate demand and aggregate supply curvesunder the impact of θ-value. Such amovement causes an elastic increase in productiveemployment and price-stability. In Keynesian jargon (Mankiw, 2003) the full impactof the incomemultiplier is realized along such non-inflationary growth paths. Finally,price-stability as a result also causes simultaneously stability in (r/i)-price relative.

Monetary Transmission Model of Islamic 100% ReserveRequirement Monetary System

In Islamic real economy theory the complementary coordination of money andfinance with the above-mentioned inner results in the variables causes reductionin interest rate ‘i’ even as the circulation of money, that is monetary transmissionbetween commercial banks and the real economy with the supervisory role of centralbankgovernance enhances productive transformation. Figure 9.1 points out the natureof money and monetary transmission between the banks and the real economy inrespect of liquidating the bank-savings into spending according to the Tawhidi onto-logical direction. Thewell-known theory ofMoney (M)-Commodity (Q)-Money (M)model is now extended to {(M)transmission 1-(SpQ)transmission 2- etc.}[θ].

Monetary Transmission in the 100% Reserve RequirementMonetary System

Abrief explanation ofmonetary transmission circulating in the 100% reserve require-mentmonetary system is as follows. The initiation of savings is by productive activityin the national income by way of which savings S0 are deposited in the commercialbanks. In the 100% reserve requirement system, the savings become deposits in banksready to be circulated as money via financial instruments (Sp) into the real economydenoted by output of Q. Now there are three different scenarios in such a circulationof money by financial instruments into the real economy. Firstly, the full amountof savings as deposits can circulate in the real economy by financing instruments

5Friedman (1953).

Monetary Transmission Model of Islamic 100% Reserve Requirement Monetary System 183

Central Bank interven�on to create marginal gold stock to stabilize created stocks, L2. L3, and thereby total monetary circula�on by financial instruments in RE. Yjus, finally, v 1

(2) Mv>py [Mv – L1 = py]( ) (3) Mv<py [Mv + L2 =py]( )

(1) Mv = py, v 1 L1, L2 = 0

Saving by Mobiliza�on of Household excess reserve in Business the Real Economy Na�onal: S0 morally/ethically Deposit with endogenous with Commercial banks Material choices: {X( )} Circula�on of excess reserve by

Money-Finance-Real Economy endogenous complementari�es (MSpQ)[ ]

Fig. 9.1 Monetary transmission in 100% reserve requirement monetary system of (M-F-RE)[θendogenous complementary relations

aimed at specific projects. This kind of monetary circulation results in micro-moneypursuing projects. Thereby,with the fullmobilization of savings as deposits asmoneyand financing is the feedback consequence of ‘v’ tending to unity. The micro-moneyproject-specific circulation causes the otherwise case of fractional reserve require-ment to withhold all the required deposits for the full circulatory purpose of spendingbymicro-money into projects. The underlying episteme of unity of knowledge is thusimplied to prevail in sustaining this complementary or participatory organic relation-ship between Money, Finance (Spending), and Real Economy under the impact ofendogenous organic relation caused by heightened consciousness of θ-value.

This dynamic is represented by the parameterization of the unity of rela-tions by θ-values (Choudhury, Pratiwi, Hossain, and Adenan in Toseef, forth-coming). The origin of such parameter-based inter-causal relations betweenthe activities along with their inner variables is shown in expression(9.1). The project-specific form of the quantity equation is given by,M = A∗�n

i=1Maii

](θ]; [

p · y = spending = B∗�ni=1(p · y)bii

][θ].The other cases of monetary transmission shown in Fig. 9.1 are firstly, of excess

quantity of money adjusted by a withdrawal of L1 of quantity of money to restorethe equation of exchange: (Mv > py → [Mv – L1 = py](θ)). The other case is ofexcess demand for money with adjustment thereby with injection of loanable fundby the Central Bank of L1. In every case, the adjusted equation of quantity theory ofmoney and spending is restored. The result then is identical to the 100%mobilizationof money into the real economy via financial instruments and banking institutions.

184 9 Endogenous Monetary Transmission by Meso-Economic Model

The central bank applies a marginal quantity of gold as numeraire to stabilize thecurrency value of all monies in circulation, including L1, L2 and the rest.6

The result in monetary transmission then is 100% reserve with commercial banksmatching themonetaryflow throughfinancial instrumentswith real economyactivity.This is the meaning of 100% reserve requirement monetary system. The centralbank thereby ceases to have monetary governance on monetary transmission. Onlymarginally there exist themanagement of L1 and L2, and the overseeing and guidanceof the states and policies of the economy with micro-money. In such money-finance-real economy interrelations the central bank establishes a discursive environment ofconsultation and policy guidance with commercial banks (Islamic banks), financialinstitutions, the real economy agencies, and all participants in economic activity.

A Focused Review of the Literature

100% reserve requirementmonetary transmission of the [M,Sp,Q’][θ] type appears inthe seminal works ofMaritain.7 Maritain’s contribution on a nature of money recom-mends unlimited tokens representing money for circulation in the real economy, sothat all individuals and households would benefit from these tokens by exchange ofgoods and services. Monetary control by the central bank, commercial banks, andother monetary authorities would disappear. In 100% reserve requirement monetarysystem with the gold standard as a stable numeraire the circulation of micro-moneyis similarly recommended to be unlimited so as to be circularly related with realexchange in goods and services. Thereby, the wellbeing effect will be optimized andasset-backing by gold would be minimal in volume. Gold would be required by thecentral bank only to stabilize the circulatory currency value and the residual amountof excess reserves in the central bank (Fig. 9.1).

The praise for expansionarymonetary supply formeeting the demand for spendingin goods and services in the real economywas also proposed by theAustrianSchool ofEconomists.8 The unit of micro-money was named as Unit. It was thus the numeraireto match up with a unit value of spending in goods and services in the real economy.On the side of the wellbeing contribution of such micro-money Schumpeter’s (1961)

6The dynamics of monetary transmission under 100% reserve requirement monetary system implythat there is an inverse relationship between creation of gold (G) and trade (py). Thereby, goldcreation comes to end as the adjustments in limiting amounts of L1 and L2 restore the 100%mobilization in (M-F-RE)[θ].We write:

L1 − L2 = �M = �py = G. We rewrite this expression as, �py/py = G/M. That is, currencyvalue ofmoney in circulation, py, equalsG/M.Nowasmonetary transmission increases,M increasesin quantity, G declines in volume. Thereby, G/M = a, as a declining parameter. Change in currencyvalue, g(py) is therefore stabilized around ‘a’ the total amount of money in circulation. That is G =a * M, with G declining asymptotically, as ‘a’ and M movement establish a rectangular hyperbola.7Maritain (1985).8Yeager (1997), Hayek (1999).

A Focused Review of the Literature 185

entrepreneurial growth model is an example of micro-money being in high supplyto finance sustainable microentrepreneurial projects.

In recent times, it is surmised by hind sight that the monetarism of an easy ratherthan a counter-cyclical contraction in the quantity of money into the real economycould have stemmed the tide of the Great Depression. In a growing economy, thecomplementarities between fiscal (spending) andmonetary policies can be best fittedfor non-inflationary economic growth.

In all such states of [M,Sp,Q’](θ) model within the regime of 100% reserverequirementmonetary system, there remains the consistency of the effect of declininginterest rates on the complementarities between money, finance, and real economy.Furthermore, the expanded release of monetary supply to endogenously supportentrepreneurship, sustainability of non-inflationary economic growth, and therebywellbeing. The early work of Friedman (1960) pointed out the possibility of such aholistic possibility of monetary arrangement.

The [M,Sp,Q’][θ] model along with its early prototypes in the history of money,monetary policy, and institutional control over quantity of money for the realeconomy suggest that this model is consistent with the state of a productive andethically sustainable economic regime with wellbeing as monetary and financialresources increased to complement with the real economy. Thereby a circular causa-tion exists between the dynamics of money, finance, and real economy interrelationsand the phasing out of all forms of interest rates causing release of resources forsustaining the holistic consequences of the wellbeing criterion. This yields the situa-tion whereby a dynamic evolutionary learning by endogenous interrelations betweenthe inner variable of [M,Sp,Q’](θ) type monetary transmission model is attained(Hayek, 1990).

Firstly, we take the case of the absence of ijara-type pricing, such as rental in ijara(assets acquired by deferred payments), premiums (as of takaful), deferred payments(as of mark-up pricing by murabaha), risk and return pricing on credit sale (as in thecase of twarruq, innah, istisna). There are also the many cases that are daily conjuredup by so-called ‘shari’ah-compliance’ legitimation of Islamic financial instruments.

All such deferred rental kinds of rates as prices on financial instruments, andthereby their pricing relations with goods and services in market exchange, are inde-terminate. This problem is true at the initial point of a mutual contract, unless suchprices are forward-looking prices that can be realized only ‘nearest’ to the pointof exchange transactions. Forward-looking pricing is tantamount to interest rate(riba), for it remains undetermined at the present time of a contract. Thereby, realeconomic transactions remain equally undetermined in valuation. On the other hand,if goodwill of donations is used to form financial capital, this is not feasible undercontinued conditions of uncertainty and financial limitations of groups and individ-uals as donors for free-ridership. Feasibility and sustainability demand organizedforms of pricing for risk, return, and transactions in the intertemporal sense. Noformula has been derived according to shari’ah to resolve this critical outstandingproblem of forward-looking ijara type pricing. There is no evidence of shari’ahinstruments regarding their stability role in financing during global financial crises,as otherwise claimed. The only other way how this could happen is by relying upon

186 9 Endogenous Monetary Transmission by Meso-Economic Model

large inflow of rich shareholders’ funds. Such a case is implied in the greater thanunit value of (Finance/Deposit)-ratio in shareholding of Islamic banks during thefinancial crises.

Twarruq as an Example of Micro-Money in IslamicFinancial Mobilization

One of the kinds of micro-money that has been debated by shari’ah-complianceinstitutional financial innovations in recent times is called twarruq. Twarruq is a short-selling financial credit arrangement. The buyer of an asset buys on credit withoutpaying now. Upon financial need, the buyer sells the credited asset at a lower price toraise the needed funds. In the light of the Tawhidi law of unity of knowledge derivedfrom the monotheistic origin of Islamic worldview, twarruq is both ridiculous andunlawful and inefficientmode of financing. Thereby, the use of such a fund is contraryto achieving economic stability. How and Why? The principle of relational unitybetween Money (M), Spending (Sp), Real Economy (Q), and thereby such sustainedcontinuity by the [MSpQ-M…][θ] symbiotic relationship is foregone. The ijara-typepricing problem of intertemporal interest rate, as mentioned above, reappears andremains unresolved.

It can be explained that twarruq causes devaluation of assets by lowering theeffective prices in short-selling of assets. There also appears a smaller availablefinancial need tomeet the increasing asset transaction demand. The economy therebycomes to have two adverse effects. Lesser amounts of funds into the economy byasset devaluation cause a less productive economy with lower funds-flow into thereal economy. The explanation of such marginal substitution between credited assetsand their short-selling at lower price follows a neoclassical approach.9

All the tenets of [M,Sp,Q’][θ] are thus lost. The Tawhidi Law of relational unitysuperseding the legitimacy given to the differentiated ways of shari’ah, is violated.The shari’ah, fiqh, and fatawa (jurisprudence, opinionated religious verdicts) in allsuch various cases of pricing and asset valuation and dynamic resource allocationby inter-causal learning between the critical variables remain untenable.10

9A ‘marginal substitution’ form of the neoclassical production possibility curve between creditedassets (superior, A) and cheaply sold same asset to raise cash (inferior, A′) can be shown along theshifting production possibility curves with resource allocation increasingly into A′. The respectiveprices are p andp′.Wenote themarginalist formula of ‘optimal’ resource allocation along the shiftingproduction possibility curve caused by optimal resource allocation along the inferior asset curve, A′-trajectory:−((�A/�A′)↓ = (p′/p)↓, as.�A↓ and�A′↑. Thereby, (p′/p)↓. Twarruq allocationof resources abides in this case of marginalism along the inferior goods trajectory for the crediteditem by the short-selling items. The (MSpQ)-circular relations in continuity are annulled. The trulyIslamic epistemological inference of unity of knowledge between these variables is annulled in thecantankerous shari’ah approach. All the implications of social and economic stability arising fromthe wellbeing objective criterion are annulled.10On the contrary, the neoclassical result is negated in the precept of unity of knowledge with inter-active, integrative, and evolutionary learning dynamics. Now ‘θ’ as knowledge inducing parameter

Empirical Results of Islamic Monetary Transmission Model for Bank Indonesia 187

Empirical Results of Islamic Monetary Transmission Modelfor Bank Indonesia

A monetary transition model for the Bank of Indonesia defined as the degree ofeffectiveness of mobilizing depositors’ funds as bank-savings into productive trans-formation of the real economy has been estimated and statistical results derived. Thereal economy is further disaggregated for the Primary Sector, Secondary Sector,and Tertiary Sector. The variants of such a model are given below (NirDukita,2018). In terms of the [M,Sp,Q’][θ], the Tawhidi methodological tenets of conti-nuity in respect of the Tawhidi episteme of unity of knowledge is satisfied if thereare sustained complementarities in the suggested model between their inner vari-ables. The vector of variables would comprise socioeconomic variables, financialinstruments of resource mobilization, and epistemic value parameters denoted by‘θ’. The specific methods to evaluate the resulting statistical models of θ with theirinner endogenously interactive, integrative, and evolutionary learning variables asadduced in the wellbeing function of inter-variable complementarities signifyingTawhidi episteme of monotheistic unity of knowledge are tried out. The endoge-nous inter-variable equations form the circular causation models signifying degreesof interactive integration attained by the force of evolutionary learning. Finally, thewellbeing function for [M,Sp,Q’][θ] for the three real economy sectors are deter-mined. Thus all the phenomenological attributes of Tawhidi methodological world-view are activated for a critical examination of the [M,Sp,Q’][θ] model, followed byits recommendations in the monetary transmission model tested for Bank Indonesia.

Description of variables (symbols) in the monetary transition model:

1. PS (Primary Sector) denotes the total of sectoral GDPs for the followingsectors—agriculture, mining, processing industry, electricity, gas and construc-tion.

2. Y (real GDP) is based on constant prices of 2010.3. PS/Y denotes the ratio of Primary Sector GDP to Real GDP (real output).4. SS (Secondary Sector) denotes the total of GDPs of the trade, transportation,

and business services obtained by summing up the GDPs for the trade, hoteland restaurant; transport and communication; finance, real estate and businessservices sectors.

5. SS/Y denotes the ratio of Secondary Sector to Real GDP (real output).

of complementarities between A andA′ causes both of these to increase continuously along with theincrease in resource allocation by learning. Thereby, (p′/p)[θ] > 0 also causes (�A/�A′) [θ] > 0,along the continuously increasing resource allocation with θ-induction increasing in the neighbour-hood of probabilistic occurrence of complementary inter-variables relations of [M,Sp,Q’][θ]. Theneoclassical results of optimal resource allocation and marginal rate of substitution (opportunitycost) are annulled in the Tawhidi dynamics of unity of knowledge along all continuums of comple-mentary allocation of resources between the selected variables. Twarruq type allocation is dispelledfrom acceptance in the Tawhidi methodological worldview by the epistemological dynamics ofθ-induction of complementarities in the [M,Sp,Q’][θ] circular causation relations of the wellbeingobjective criterion. Thereby, economic and social stability is attained, as explained in the text.

188 9 Endogenous Monetary Transmission by Meso-Economic Model

6. TS (Tertiary Sector) denotes the total of GDPsfor services (Government andprivate services).

7. TS/Y denotes the ratio of Tertiary Sector to Real GDP (real output).8. Fin/M denotes the ratio of total financing by Shari’ah banks in Indonesia to

total money supply (M0 + M1).9. SIMA denotes Interbank Mudarabah Investment.10. SIMA/TotFindenotes the ratio of SIMA to total financing byshari’ah banking

in Indonesia interpreted as portion of liquid funds in money market.11. Theta ‘θ’ denotes the knowledge variables. ‘θ’ is obtained by determining the

parametric weight of data for the variables. The weight of each of the differentvariables is based on an understanding of the highest rank say 10 assigned forthe best data values in the light of Tawhidi methodology (Choudhury & Rahim,2016). The formula for calculating values in each column is: θ = (10/corre-sponding observation value. θ = 10 for best value of the variable) * (observedvariable values in the column). After getting all computations of such weightsfrom each column variables, they are averaged across columns by rows to obtainthe average ‘θ’ of all variables.

It should be noted that, theway themeso-economic relevance of Islamic economicmethodology is introduced in the following formulations and analysis is firstly bytheir primal ontological reference to the precept of unity of knowledge. Secondly, themacroeconomic model is applied to the microeconomic disaggregation into sectors.The circular causation relations estimated here contain both microeconomic andmacroeconomic variables. Thus the mesoeconomic model emerges and is estimated.

Results of Data Analysis

Simultaneous Ordinary Least Square (OLS)

Hereinafter, the prerequisite test results presented from the entire regression modelare as follows:

(i) Normality TestThe results obtained from the test of the normality assumption with the Jarque–Bera normality test for transmission model data show that the error follows thenormal distribution with ρ-value values of 0.378; which is greater than α =0.01. This means that with a 99% confidence level it can be said that the errorterm is normally distributed.

(ii) Multicollinearity TestResults of tests on the assumption of absence ofmulticollinearity showed that inthemonetary transmissionmechanismmodel no presence ofmulticolinearity isnoted. This is indicated by the correlation coefficient between each independentvariable in each model being smaller than 0.8.

Results of Data Analysis 189

(iii) Heteroscedasticity TestHomoscedasticity test results with white heteroscedasticity in the transmissionmechanism model showed ρ value square of 0.2863, greater than α = 0.01. Itcan be concluded that no heteroscedasticity exists in the regression model witha 99% confidence level.

(iv) Autocorrelation TestThe results obtained from the tests on the assumption of the absence of auto-correlation with the Breusch-Godfrey Serial Correlation LM Test showed thatthe regression model contained autocorrelation. The value of ρ-value in thedata of transmission model is 0.0000, which is less than α = 0.01, meaningthat there is autocorrelation in the regression model.

The monetary transmission model is further estimated by the VAR method toaccommodate lag effect, especially by the use of VAR Granger Causality to get thenext picture from the transmission mechanism path.

Vector Autoregressive (VAR)

The VAR stability test is required to determine the stability of VAR estimation. Theresults of the VAR stability test in the following models show that a stable VARmodel is shown by the modulus value, being less than one (Gujarati, 2010).

Discussion of the Monetary Transmission Modelof [M,Sp,Q’](θ)

The [M,Sp,Q’][θ] monetary transmission model uses an Islamic methodologyapproach with a view of the unity of divine knowledge. A model that is alwaysanchored in the Tawhidi methodology based on the Quran and the sunnah. TheQur’an presents a model of development within the framework of wellbeing systemwith the spirit of participation; that is pairing in a process of circular causation. Thestrong base is circular causation in the evaluation of wellbeing (maslaha) accordingto the Tawhidi episteme of unity of knowledge. The relations of circular causationresult in sustainability explained by simulations along the Tawhidi String Relation(TSR) up to the Hereafter. In a saying of Prophet Muhammad, it is declared thatthe search and discovery of the inner meaning (ta’wil) of the Qur’an and the sunnahwill prevail until the end of time. The Qur’an provides a conceptual basis of analysisinvolving the inherent morality in economics, society, and science. In its implemen-tation, the complementary participatory concept between the variables of eachmodelis accommodated by including the parameter θ in each of the monetary transmis-sion model. These are the model estimated without θ-value, and that estimated withθ-value.

190 9 Endogenous Monetary Transmission by Meso-Economic Model

The discussion of the results according to this Islamic framework follows thestages of analysis given here:

1. Using Ordinary Least Square Analysis Methods for Effectiveness Analysis, theestimation result of monetary transmission mechanism model refers to the main-stream econometric concept, which does not involve ‘θ’ as an indicator of thedegree of complementarities, which symbolizes learning between the variables inthe model. The [M,Sp,Q’](θ) monetary transmission mechanism model includesθ to represent the presence of the learning process of each economic agent (repre-sented by each variable) in the model. The first evaluation method used is thesimultaneous OLS method, firstly without and next by entering the ‘θ’-effect togive comparison between these two aspects of themonetary transmissionmodels,firstly without and then with θ-value.

2. Next the Vector Auto Regressive (VAR) with Granger Causality method isused to get a transmission mechanism path. This model is a dynamic modelof quantitative behavioral type.

Empirical Analysis of the Monetary Transmission ModelWithout ‘θ’-Parameter

The estimation result of the monetary sector linkage model to the real economy bythree sectors is carried outwithout learning parameter ‘θ’. Statistical software Eviews9 yields the following regression estimation in natural loglinear form (LN).

Primary Sector:

LNPS_Y = 0.99444 − 0.08993∗LNFIN_M − 0.00216∗LNSIMA_FIN − 0.00017∗RSBIS + 1.43272e − 05∗INFt-stat: (632.8512)∗∗∗ (−28.1313)∗∗∗ (−2.9518)∗∗ (−6.4277)∗∗∗ (0.1528)

R2 = 0.924073;DW = 0.284522 (9.4)

LNFIN_M = 9.66382 − 9.65612∗LNPS_Y − 0.03158∗LNSIMA_FIN − 0.00129∗RSBIS − 0.00037∗INFt-stat: (29.5546)∗∗∗(−28.1313)∗∗∗ (−4.3202)∗∗ (−4.2606)∗∗∗ (−0.3791)∗∗∗

R2 = 0.916643;DW = 0.263233 (9.5)

LNSIMA_FIN = 32.38641 − 31.32116∗LNPS_Y − 4.26216∗LNFIN_M − 0.01621∗RSBIS − 0.02004∗INFt-stat: (3.0778)∗∗∗ (−2.9518)∗∗∗ (−4.3202)∗∗ (−4.6535)∗∗∗ (−1.7992)∗

R2 = 0.390041;DW = 0.454567 (9.6)

RSBIS = 1455.45599 − 1469.08676∗LNPS_Y − 101.54637∗LNFIN_M − 9.42822∗LNSIMA_FIN 0.18678∗INFt-stat: (6.3942)∗∗∗ (−6.4277)∗∗∗ (−4.2606)∗∗ (−4.6535)∗∗∗ (−0.6877)

R2 = 0.510917;DW = 0.335029 (9.7)

INF = −10.17250 + 13.58620∗LNPS_Y − 3.250919∗LNEIN_M − 1.31103∗LNSIMA_FIN − 0.02102∗RSBISt-stat: (0.1151) (0.1528) (−0.3791) (−1.7992)∗ (−0.6877)

R2 = 0.041533;DW = 1.183478 (9.8)

Empirical Analysis of the Monetary Transmission Model Without ‘θ’-Parameter 191

Note ***denotes significance at 99% confidence level** denotes significance at 95% confidence level*denotes significance at 90% confidence levelNo asterisk (*) denotes not significant.The coefficients of each equation show the magnitude of elasticity in relation to

the endogenous dependent variable in circular causation. The above equations canbe rewritten in the Cobb–Douglas form:

PS_Y = 4.199Fin_M−0.0899Sima_Fin−0.0022rSBIS−0.0002Inf0.00001 (9.9)

Fin_M = 15737.47PS_Y−9.6561Sima_Fin−0.03158rSBIS−0.0013Inff0.0004 (9.10)

Sima_Fin = 1.15E±14 PS_Y−31.3212Fin_M−4.2621rSBIS−0.02Inf0.02 (9.11)

rSBIS = PS_Y−1469.08Fin_M−101.54Sima_Fin−9.428Inf−0.1867 (9.12)

INF = 3.38E±05 PS_Y13.58Fin_M−3.251Sima_Fin−1.311rSBIS−0.02 (9.13)

Secondary Sector:

LNSS_Y = 0.81899 + 0.23129∗LNFIN_M + 0.00236∗LNSIMA_FIN + 0.000366∗RSBIS − 7.815456e − 06∗INFt-stat: (276.3376)∗∗∗ (38.3602)∗∗∗ (1.7053)∗ (7.0387)∗∗∗ (−0.0442)

R2 = 0.957741;DW = 0.247737 (9.14)

LNFIN_M = −3.23895 + 3.99779∗LNSS_Y − 0.01555∗LNSIMA_FIN − 0.00122∗RSBIS − 0.00026∗INFt-stat: (−33.5036)∗∗∗ (38.3602)∗∗∗ (−2.7595)∗∗∗ (−5.3563)∗∗∗ (−0.3522)

R2 = 0.952266;DW = 0.238512 (9.15)

LNSIMA_FIN = −6.93076 + 10.04756∗LNSS_Y − 3.8376∗LNFIN_M − 0.01488∗RSBIS − 0.02137∗INFt-stat: (−1.4301)(1.7053)∗∗∗ (−2.7595)∗∗∗ (−3.9869)∗∗∗ (−1.8779)∗

R2 = 0.361234;DW = 0.435553 (9.16)

RSBIS = −669.8449 + 811.5558∗LNSS_Y − 158.615988∗LNFIN_M − 7.86099∗LNSIMA_FIN − 0.1914∗INFt-stat: (−7.1088)∗∗∗ (7.0387)∗∗∗ (−5.3563)∗∗∗ (−3.9869)∗∗∗ (−0.7227)

R2 = 0.534652;DW = 0.347672 (9.17)

INF = 5.04529 − 2.08377∗LNSS_Y − 3.9915∗LNFIN_M − 1.3357∗LNSIMA_FIN − 0.02264∗RSBISt-stat: (0.1306) (−0.0442) (−0.3522) (−1.8779)∗ (−0.7227)

R2 = 0.41362;DW = 0.183129 (9.18)

The Cobb-Douglass form is written as:

SS_Y = 2.265Fin_M0.231Sima_Fin0.002rSBIS0.0003Inf−0.000007 (9.19)

192 9 Endogenous Monetary Transmission by Meso-Economic Model

Fin_M = 0.0395SS_Y3.997Sima_Fin−0.015rSBIS−0.0012Inf0.0003 (9.20)

Sima_Fin = 0.0009 SS_Y10.047Fin_M−3.837rSBIS−0.0148Inf0.021 (9.21)

rSBIS = 1.2E−291SS_Y881.55Fin_M−158.615Sima_Fin−7.860Inf−0.191 (9.22)

INF = 155.244 SS_Y−2.083Fin_M−3.991Sima_Fin−1.335rSBIS−0.0226 (9.23)

Tertiary Sector:

LNTS_Y = 0.7825 + 0.0818∗LNFIN_M + 0.0086∗LNSIMA_FIN − 1.1412e − 05∗RSBIS + 0.0005∗INFt-stat: (59.6468)∗∗∗∗(3.0629)∗∗∗ (1.4107) (−0.0504) (−0.5797)

R2 = 0.412828;DW = 0.085567 (9.24)

LNFIN_M = −0.2614 + 0.88700∗LNTS_Y − 0.0831∗LNSIMA_FIN + 0.0028∗RSBIS − 0.0040∗INFt-stat: (−1.0982) (3.0629)∗∗∗ (−4.4124)∗∗∗ (3.9203)∗∗∗ (−1.5508)

R2 = 0.412828;DW = 0.085567 (9.25)

LNSIMA_FIN = −0.1725 + 1.8917∗LNTS_Y − 1.6799∗LNFIN_M − 0.0113∗RSBIS − 0.0225∗INFt-stat: (0.1604) (1.4107) (−4.4124)∗∗∗ (−3.5495)∗∗∗ (−1.9659)∗

R2 = 0.356427;DW = 0.398679 (9.26)

RSBIS = −5.8859 − 1.8544∗LNTS_Y + 41.2349∗LNFIN_ M − 8.3899∗LNSIMA_FIN − 0.2786∗INFt-stat: (−0.2011) (−0.0504) (3.9203)∗∗∗ (−3.5495)∗∗∗ (−0.8846)

R2 = 0.342542;DW = 0.219064 (9.27)

INF = −1.4131 + 6.0608∗LNTS_Y − 4.9569∗LNFIN_M − 1.3893∗LNSIMA_FIN − 0.0233∗RSBISt-stat: (−0.1670) (0.5797) (−1.5508) (−1.9659)∗ ( − 0.8846)

R2 = 0.043942;DW = 1.183592 (9.28)

The Cobb-Douglass form is:

TS_Y = 2.186Fin_M0.082Sima_Fin0.008rSBIS−1.141e−05Inf0.0005 (9.29)

Sima_Fin = 0.841 TS_Y1.891Fin_M−1.679rSBIS−0.011Inf−0023 (9.30)

rSBlS = 0.0027TS_Y−1.854Fin_M41.23Sima_Fin−8.389Inf−0.278 (9.31)

INF = 0.2434TS_Y6.06Fin_M−4.9561Sima_Fin−1.389rSBIS−0.023 (9.32)

Monetary Transmission Model as Linkage Model of the Monetary Sector … 193

Monetary Transmission Model as Linkage Modelof the Monetary Sector with the Three-Sector Real Economywith θ-parameterization

The estimation results of the monetary sector linkage model to the sectoral domesticproduct processed using Eviews 9 using ‘θ’-parameterization yields the followingregression equations:

Primary Sector:

LNPS_Y = 0.9615 − 0.0474∗LNFIN_M − 0.0062∗LNSIMA_FIN + 0.0004∗RSBIS + 0.0008∗INF + 0.0033∗θ1

t-stat: (332.4868)∗∗∗ (−11.6095)∗∗∗ (−10.4715)∗∗∗ (8.1853)∗∗∗ (8.6713)∗∗∗ (12.2111)∗∗∗

R2 = 0.953301;DW = 0.403580 (9.33)

LNFIN_M = 11.0913 − 11.1985∗LNPS_Y − 0.04747∗LNSIMA_FIN + 0.00037∗RSBIS + 0.0020∗INF + 0.0105∗θ1

t-stat: (12.3785)∗∗∗ (−11.6095)∗∗∗ (−4.0258)∗∗∗ (0.3614) (1.1947) (1.7090)∗

R2 = 0.918640;DW = 0.275288 (9.34)

LNSIMA_FIN = 73.7758 − 77.6088∗LNPS_Y − 2.5250∗LNFIN_M + 0.0540∗RSBIS + 0.0809∗INF + 0.3894∗θ1

t-stat: (10.2359)∗∗∗ (−10.4715)∗∗∗ (−4.0258)∗∗∗ (9.7632)∗∗∗ (8.02519)∗∗∗ (13.7971)∗∗∗

R2 = 0.765370;DW = 0.418890 (9.35)

RSBIS = −768.1288 + 830.0516∗LNPS_Y + 2.9799∗LNFIN_M + 8.2299∗LNSIMA_FIN − 1.3407∗INF − 5.8088∗θ1

t-stat: (−7.7128)∗∗∗ (8.1853)∗∗∗ (0.3614) (9.7632)∗∗∗ (−14.3349)∗∗∗ (−32.5914)∗∗∗

R2 = 0.950723;DW = 0.391352 (9.36)

INF = −476.9551 + 510.8124∗LNPS_Y + 5.8161∗LNFIN_M + 4.3406∗LNSIMA_FIN − 0.47235∗RSBIS − 3.0083∗θ1

t-stat: (−8.2657)∗∗∗ (8.6713)∗∗∗ (1.1947) (8.02519)∗∗∗ (−14.3349)∗∗∗ (−16.0713)∗∗∗

R2 = 0.697690;DW = 0.788236 (9.37)

Note *** denotes significance at 99% confidence level** denotes significance at 95% confidence level*denotes significance at 90% confidence levelNo asterisk (*): not significant.The Cobb-Douglass form is:

PS_Y = 2.6156Fin_M−0.047Sima_Fin−0.006rSBlS0.0004Inf0.0008θ10.003 (9.38)

Fin_M = 65597.96PS_Y−11.199Sima_Fin−0.047rSBIS−0.0003Inf0.002θ0.01 (9.39)

Sima_Fin = 1.09E + 32 PS_Y−77.608Fin_M−2.525rSBIS−0.054Inf0.08θ0.389 (9.40)

rSBBS = PS_Y380.052Fin_M2.979Sima_Fin8.229Inf−1.341θ−5.808 (9.41)

194 9 Endogenous Monetary Transmission by Meso-Economic Model

INF = 7.29E − 208 PS_Y510.81Fin_M5.82Sima_Fin4.34rSBIS−0.472θ−3.008 (9.42)

Secondary Sector:

LNSS_Y = 0.8367 + 0.13657∗LNFIN_M − 0.0075∗LNSIMA_FIN + 0.00112∗RSBIS + 0.0013∗INF + 0.0057∗θ1

t-stat: (231.7306)∗∗∗ (9.2824)∗∗∗ (−4.0491)∗∗∗ (9.4165)∗∗∗ (5.3583)∗∗∗ (6.8668)∗∗∗

R2 = 0.969734;DW = 0.238579 (9.43)

LNFIN_M = −2.4447 + 3.0751∗LNSS_Y − 0.0357∗LNSIMA_FIN + 0.0009∗RSBIS + 0.0028∗INF + 0.0132∗θ1

t-stat: (−8.5087)∗∗∗ (9.2824)∗∗∗ (−4.0590)∗∗∗ (1.1541) (2.2031) ∗ ∗ (2.92445)∗∗∗

R2 = 0.955467;DW = 0.283460 (9.44)

LNSIMA_FIN = 14.9043 − 16.1188∗LNSS_Y − 3.4042∗LNFIN_M + 0.0547∗RSBIS + 0.0831∗INF + 0.3988∗θ1

t-stat: (4.5383)∗∗∗ (−4.0491)∗∗∗ (−4.0590)∗∗∗ (10.3436)∗∗∗ (8.3636)∗∗∗(14.5386)∗∗

R2 = 0.769916;DW = 0.447484 (9.45)

RSBIS = −330.7727 + 380.7830∗LNSS_Y + 12.9198∗LNFIN_M + 8.656∗LNSIMA_FIN − 1.369∗INF − 5.9243∗θ1

t-stat: (−10.0512)∗∗∗ (9.4166)∗∗∗ (1.1541) (10.3436)∗∗∗ (−14.3983)∗∗∗ (−31.3656)∗∗∗

R2 = 0.949786;DW = 0.395021 (9.46)

INF = −130.8673 + 149.5695∗LNSS_Y + 14.153∗LNFIN_M + 4.456∗LNSIMA_FIN − 0.4640∗RSBIS − 3.0351∗θ1

t-stat: (−5.6593)∗∗∗ (5.3583)∗∗∗ (2.2031) ∗ ∗ (8.3636)∗∗∗ (−14.3983)∗∗∗ (−16.306)∗∗∗

R2 = 0.703628;DW = 0.812723 (9.47)

The Cobb-Douglass form is,

SS_Y = 2.308Fin_M0.136Sima_Fin−0.007rSBIS0.0011Inf0.0013θ10.005 (9.48)

Fin_M = 0.086SS_Y3.075Sima_Fin−0.0357rSBIS−0.0009lnf0.0028θ0.013 (9.49)

Sima_Fin = 2970676 SS_Y−16.11Fin_M−3.404rSBIS0.054Inf0.083θ0.389 (9.50)

rSBIS = 2.2E − 144SS_Y380.7Fin_M12.91Sima_Fin8.65Inf−1.36θ−5.92 (9.51)

INF = 1.4E − 57 SS_Y149.56Fin_M14.15Sima_Fin4.45rSBIS−0.464θ−3.035 (9.52)

Tertiary Sector:

LNTS_Y = 0.7646 − 0.0228∗LNFIN_M − 0.0247∗LNSIMA_FIN + 0.0025∗RSBIS + 0.0038∗INF + 0.0163∗θ1

t-stat: (186.1819)∗∗∗ (−2.5758)∗∗∗ (−11.5462)∗∗∗ (24.5238)∗∗∗ (14.3573)∗∗∗ (33.5673)∗∗∗

R2 = 0.912237;DW = 0.404019 (9.53)

LNFIN_M = 2.138 − 2.3168∗LNTS_Y − 0.1622∗LNSIMA_FIN + 0.0112∗RSBIS + 0.0093∗INF + 0.0562∗θ1

Monetary Transmission Model as Linkage Model of the Monetary Sector … 195

t-stat: (3.1441)∗∗∗ (−2.5758)∗∗∗ (−5.8563)∗∗∗ (4.7581)∗∗∗ (2.1588)∗∗ (3.7412)∗∗

R2 = 0.474624;DW = 0.096971 (9.54)

LNSIMA_IN = 16.7742 − 21.3661∗LNTS_Y − 1.3791∗LNFIN_M + 0.0577∗RSBIS + 0.0824∗INF + 0.3986∗θ1

t-stat: (12.1860)∗∗∗ (−11.5462)∗∗∗ (−5.8563)∗∗∗ (10.9016)∗∗∗ (8.03239)∗∗∗ (14.0453)∗∗∗

R2 = 0.757849;DW = 0.380576 (9.55)

RSBIS = −251.4946 + 329.0075∗LNTS_Y + 14.2799∗LNFIN_M + 8.6595∗LNSIMA_FIN − 1.3759∗INF − 5.9434∗θ1

t-stat: (−24.2346)∗∗∗ (24.5238)∗∗∗ (4.7581)∗∗∗ (10.9016)∗∗∗ (−14.9623)∗∗∗ (−37.977)∗∗

R2 = 0.949888;DW = 0.399031 (9.56)

INF = −127.4214 + 168.3883∗LNTS_Y + 4.0723∗LNFIN_M + 4.2659∗LNSIMA_FIN − 0.4746∗RSBIS − 3.0061∗θ1

t-stat: (−13.8999)∗∗∗ (14.3573)∗∗∗ (2.1588)∗∗∗ (8.03239)∗∗∗ (−14.9623)∗∗∗ (−16.0924)∗∗∗

R2 = 0.698992;DW = 0.788969 (9.57)

The Cobb-Douglas form is:

TS_Y = 2.148Fin_M−0.0228Sima_Fin−0.024rSBIS0.0034Inf0.004θ10.0163 (9.58)

Fin_M = 8.48TS_Y−2.316Sima_Fin−0.162rSBIS0.011Inf0.009θ0.056 (9.59)

Sima_Fin = 19191922TS_Y21.36Fin_M−1.37rSBIS0.057Inf0.082θ0.398 (9.60)

rSBIS = 6.6E − 110TS_Y329.00Fin_M14.279Sima_Fin8.659Inf−1.375θ−5.943 (9.61)

INF = 4.59E − 56 TS_Y168.38Fin_M4.072Sima_Fin4.072rSBIS−0.475θ−3.006 (9.62)

Wellbeing Function

Primary Sector:

�1 = −157.4784 + 168.3749∗LNPS_Y + 2.2742∗LNFIN_M + 1.5803∗LNSIMA_FIN − 0.1548∗RSBIS − 0.2276∗INFt − stat : (−11.4830)∗∗∗ (12.2111)∗∗∗ (1.7090)∗ (13.7971)∗∗∗ (−32.5914)∗∗∗ (−16.0713)∗∗∗

R2 = 0.984777;DW = 0.422095 (9.63)

Secondary Sector:

�2 = −43.6322 + 49.4925∗LNSS_Y + 5.0699∗LNFIN_M + 1.6043∗LNSIMA_FIN − 0.1506∗RSBIS − 0.2276∗INFt-stat: (−7.3859)∗∗∗ (6.8668)∗∗∗ (2.92445)∗∗∗ (14.5386)∗∗∗ (−31.3656)∗∗∗ (−16.306)∗∗∗

R2 = 0.953019;DW = 0.450415 (9.64)

196 9 Endogenous Monetary Transmission by Meso-Economic Model

Tertiary Sector:

�3 = −42.2396 + 55.3807∗LNTS_Y + 1.8738∗LNFIN_M + 1.5646∗LNSIMA_FIN − 0.1554∗RSBIS − 0.2279∗INFt-stat: (−32.1785)∗∗∗ (33.5673)∗∗∗ (3.7412)∗∗∗ (14.0453)∗∗∗ (−37.977)∗∗∗ (−16.0924)∗∗∗

R2 = 0.972389;DW = 0.422267 (9.65)

Statistical Analysis: Results

Primary Sector

From the above estimation results, the rank of each endogenous variable is the valueof their inter-elasticity. In the primary sector equation without ‘θ’ parameterizationthe magnitude of elasticity of all variables i.e. financing (M, Sp), SIMA, SBIS rateand inflation is less than one. This means that the response of primary sector changeis inelastic to the change in every independent endogenous variable. Among theoverall determinants of the primary sector results, financing is the largest contributorrelative to the primary sector, compared to other variables that affect negatively. Thisis indicated by the greatest number of powers.

The financing (spending) elasticity of −0.0899 means that, every 1% increase inshari’ah financingwill decrease primary sector yield by 0.0899 of 1%, and vice versa,ceteris paribus.Meanwhile, the variables ofmonetary instrument andmacro-inflationvariable are inelastic and have little effect on the primary sector. The role of Islamicmonetary instruments, the rate of Bank Indonesia Shari’ah Certificates (rSBIS) isnegatively influenced by the primary sector variables. That is, if the primary sectordeclines, it will cause rSBIS to increase and vice versa, ceteris paribus. In fact,one of the objectives of Bank Indonesia intervention regulated by Law no. 3 year2004 Article 7 with monetary instruments held is for stabilization of rupiah value,including inflation. In the event of inflation, Bank Indonesia will tend to withdrawthe money supply. Meanwhile, if we look at the role of rSBIS to inflation, we findthat rSBIS is inelastic to inflation. This shows that the transmission mechanism isdifferentiated between the monetary sector and the real sector, especially noted forthe primary sector.

In the estimation results in the secondary sector, the complementary results arefound for transportation and trade, showing the secondary sector result is positivelyinfluenced significantly by the financing. This is in contrast to the primary sectors thatare negatively affected by shari’ah financing. The role ofmonetary instrument, rSBISis inelastic with a relatively small coefficient value on secondary sector outcomes.Although legally monetary instruments are intended for the purpose of stabilizinginflation, the estimates show that rSBIS does not significantly affect inflation. Thestrong effect of financing in the secondary sector is also shown by the value of thecoefficients of secondary sector being greater than one. The significant positive effectis elastic with Islamic bank financing, while correlated negatively in the primary

Statistical Analysis: Results 197

sector. This implies that, Islamic bank financing has not been aligned to the industryas otherwise would be expected. This result indicates that there is an imbalancebetween the primary sector and the secondary sector. It can be caused by threefinancing factors in the profit orientation of the sectors: (i) murabaha; (2) shortterm; and (iii) high turnover. In the secondary sector however, the positive impact ofshari’ah financing in the secondary sector is shown by positive and elastic influenceof Interbank Mudarabah Investment (SIMA) and rSBIS.

Tertiary Sector

Furthermore, in the tertiary sector, the monetary instrument of rSBIS also has nosignificant effect on inflation. The increase in tertiary sector output is supportedpositively by shari’ah financing, although it is inelastic. So it can be said that, theeffectiveness of shari’ah monetary instrument is relatively low. There is lack ofcircular causation linkage between the monetary and real sectors, even though withthe monetary instruments of shari’ah.

Wellbeing Models

Primary Sector

Themonetary transmissionmodel for all three sectors of the real economygives betterresult by accommodating ‘θ’in the circular causation equations. This is seen fromthe overall R2-value being higher. The role of knowledge, the learning process of aparticipatory attitude implied by ‘θ’ showed more responsiveness of the endogenousdependent variables to changes in almost all the explanatory variables in every modelequation.

The Cobb–Douglas forms of the three-sector estimated wellbeing models resultin Cobb Douglas forms:

θ = log(−157.4784)PS_Y168.37Fin_M2.27Sima_Fin1.58rSBIS−0.155INF0.22 (9.66)

θ = log(−43.6322)SS_Y49.49Fin_M5.06Sima_Fin1.604rSBIS−0.150INF0.227 (9.67)

θ = log(−42.2396)TS_Y55.38Fin_M1.874Sima_Fin1.564rSBIS−0.155INF0.22 (9.68)

In Cobb Douglas form, the sum of the variable-specific elasticity coefficients ofthe wellbeing function gives the indicator of economies of scale of wellbeing. Thistotal elasticity value of each variable to wellbeing provides the measure interpretingwhether economic activity is sustainable by complementarities and stable in thelong run or not. Overall, the sum of the coefficients in θ-parameterized equations(estimated wellbeing functions) of all sectors shows a positive magnitude, greaterthan one.

198 9 Endogenous Monetary Transmission by Meso-Economic Model

Conclusion

This chapter is among the first of its kind, sparing the contributions by Choud-hury 11 to address the critical theme of how to stabilize the economy by the useof endogenous relationship involving abstracto-empirical methodological approach.This paper brings out the elegantly brief definition of the nature ofmoney and the roleIslamic banking institution in monetary transmission for real economy stabilizationand attaining of wellbeing (maslaha).

What then is money in Islam? This chapter has shown that, money identifies withthe mobilization of bank-savings as deposits into spending in the good things of lifeand the avoidance of the socially unwanted choices. Thus the quantitative policy-theoretic formulation and analysis of the [M,Sp,Q’](θ) in evaluating the wellbeingobjective criterion of unity of knowledge between the inner variables of this modeland their complementary interrelationships to theorize and recommend economicstability constitutes the centrally most focused objective of Islamic methodologicalworldview.

From the empirical work in this paper we can learn about the affirmation andthe corrective for change into [M,Sp,Q’](θ) based on factual case study of BankIndonesia. Thereby, the potentiality of the [M,Sp,Q’](θ) model and its recommenda-tions in Islamic monetary transmission from Money to Real Economy via the mobi-lization of Depositor bank-savings is established. This abstracto-empirical gatewaytowards monetary transmission within 100% reserve ratio monetary system trans-formation comprises the great Islamic transformation and its evolutionary learningcentered Tawhidimethodological worldview.

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Yeager, L. B. (1997). The fluttering veil, essays on monetary disequilibrium. Indianapolis, IN: TheLiberty Press.

Chapter 10Money, Debt, Interest, and Real Economy

Abstract The shari’ah orientation to the problem of money and real economy andall that such a relationship upholds has failed to give money its distinctive natureand logic. Only the mainstream monetary and its financial implications were copiedfrom prevalent ideas and theories. Thus the profound theory of money, monetarypolicy, debt, interest and the real economy in Islamic perspective as derived from thecardinal qur’anic ontological precept of Tawhid as law could not be in quest, search,and discovery. The consequence of such a remiss of this most substantive field ofknowledge was the unquestioned acceptance of debt-bound instruments, and therebythe ambivalence of the atemporal and intertemporal meaning of interest rate (riba).Thereby, the so-called field of Islamic economics and finance and its potential contri-bution to a most outstanding theory and functioning of the new financial architectureremained null and void. The Tawhidi law of monetary oneness with the wellbeingobjective criterion of money and real economy remained unknown in shari’ah asa human concocted mechanism. This must change completely to bestow meaning,substance, and ultimate functioning of the Tawhidi law of unity of knowledge tomoney and real economy interrelationship and all the wellbeing implications thatthe Tawhidi law upholds.

Introduction

The contrast between Tawhidi and non-Tawhidi approach to Islamic economics studyis manifest in the case of these two opposite ways of examining the interrelationsbetween money, debt, interest, and the real economy. In this context the question israised whether it is tenable to argue regarding avoidance or phasing out of interestrate and interest-based business in the presence of debt-based financing. Furtherstill, the question is investigated whether, money and real economy complementaryrelationship is tenable in the presence of debt and thereby interest in its two aspects,namely, atemporal and intertemporal concepts.

This chapter will argue that the proliferation of debt instruments in Islamic financedisables this field permanently by the prevalence of interest rate in its atemporal

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_10

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202 10 Money, Debt, Interest, and Real Economy

and intertemporal nature. This disabling relationship further destroys several of themoral and ethical attributes of socially inclusive values that true Islamic financingought to bear. The underlying cause of distortion in the often clamored for sociallyinclusive financing by Islamic financing idea and its financing instruments is thefailure of so-called Islamic economics and finance as a field of study to comple-ment money, financing, and the real economy by a cogent methodological premisedunderstanding, approach, and modulation as is the case with the Tawhidi method-ological worldviewof unity of knowledge across these variant systems with debt andconsequential hidden interest rates.1

The Analytical Approach of Investigation

The starting point of the criticism of Islamic debt financing in entirety of this fieldof money-real economy inter-causal relationship is to examine the corrupting inter-relations caused by the following sub-sets of inter-causal effects. We note here thedisruptive break in the Tawhidi (unity of knowledge) caused by the presence of debtand interest rate as inter-related variables of their own category whereby withdrawalof resources from mobilization takes place.

The various functions f’s by their subscripts denote the circular causation recursiverelations between the variables as noted. The generalized property is maintained that,continuous evolutionary learning causes continuous variations. Thereby, the productof the reverse causality of the recursive functions is not exact inverse functions ofeach other. Thus for example in compound function notation of •, f12 • f21 �= 1, ratherequals the non-zero evolutionary learning function denoted by say α(θ). Thus, (f12 •f21)[θ] = α1(θ) �= 1. Thereby, (d/dθ)[(f12 • f21)[θ]] = f21 · df12/dθ + f12 · df21/dθ =dα1(θ)/dθ �= 0. Indeed, if for generality the vectors {θ} and {θ′} denote knowledgeand de-knowledge, respectively, then dα1(θ)/dθ > 0 for the choices of knowledge andde-knowledge and their spatial endowments as the respective cases would be. Yetnote that, dα1(θ)/dθ′ < 0, dα1(θ′)/dθ < 0.

Now then the following results would hold in the case of the Tawhidi evolutionaryworldview of unity of knowledge.

(d/dθ}(f32 • f23)[θ] = f32 · df23/dθ + f23 · df32/dθ < 0 identically because of thenegative relationship between RE and D.2

Likewise, (d/dθ}(f31 • f13)[θ]= f31 · df13/dθ + f13 · df31/dθ < 0 identically becauseof the negative relationship between M and D. That is, money in circulation andbonds held in debt are perfect substitutes.

Triangles 2 and 3 explain the same kinds of results as above in terms of theinter-causal evolutionary learning relations between the variables.

1Choudhury, Pratiwi, and Hossain (2019).2A prominent example is the debt-equity trade-off. See Modigliani and Miller (1958).

The Analytical Approach of Investigation 203

InTriangle 4, interest rate (i) has a positive relationshipwithD, and a negative rela-tionship with the demand for money.3 In the Islamic model of 100% reserve require-ment monetary system the circulation of money in the real economy is promotedthrough the commercial banks (Islamic banks). Thereby, the quantity of money incirculation is a negative function of the rate of interest. Thereby, debt and interestbeing positively complementary, the relationship between money circulation anddebt is negatively related. Likewise, the correlation between ‘i’, D, RE is negative,via the positive complementarity between M and RE.

The circular causal relations between the variables of the vector Z(θ) = {M/RE,M/D, M/I, RE/D, RE/i}[θ] in the wellbeing function, W(Z(θ)) are expected be to asfollows:

EvaluateW(M/RE,M/D,M/I,RE/D,RE/i}[θ]. (10.1)

Evaluation stands firstly for estimation in respect of results as they appear in theexisting state of the inter-variable circular causation relations. Estimation is secondlycarried forth by simulation of the estimated results in respect of changes of theestimated coefficients towards attaining better states of positive complementarities.This means, (M/RE)↑, (M/D)↑, (M/I)↑, (RE/D)↑, (RE/i)↑ with simultaneity in M↑,RE↑, D↓, i↓ as θ↑. In the imperfect state of Islamic transformation according to theworldview of unity of knowledge of Tawhid as law, it can be possible that D↑, i↓ butless than M↑, RE↑. Simulation of the wellbeing model subject to circular causationrelations is now applicable.

The circulation causation relations are,

M(θ)/RE(θ) = f1(M/D,M/I,RE/D,RE/i)[θ] (10.2)

M(θ)/D(θ) = f2(M/RE,M/I,RE/D,RE/i)[θ] (10.3)

M(θ)/i(θ) = f3(M/RE,M/D,RE/D,RE/i)[θ] (10.4)

RE(θ)/D(θ) = f4(M/RE,M/D,M/i,RE/i)[θ] (10.5)

RE(θ)/i(θ) = f4(M/RE,M/D,RE/D,M/i)[θ] (10.6)

The final quantitative form of the wellbeing function is, v∧ = W(Z∧(θ)), whenv(θ) is a polynomial function in ‘θ’. This is simplified to a linear approx. in ‘θ’-valueto the approximate quantitative form of the wellbeing function,

θ∧ = W(Z∧(θ)

). (10.7)

3Tobin (1947).

204 10 Money, Debt, Interest, and Real Economy

The hatted variables denote the estimators of the circular causation system ofEqs. (10.2)–(10.6) in their evaluated forms.

Each of the functions are preferably taken in the logarithmic form so as to readilyassign the meanings of the evaluated coefficients as inter-variable elasticity coeffi-cients and to study the returns to scale (economies of scope) in the evaluatedwellbeingfunction of expression (10.7).

The Existing State of Islamic Financial Instruments

Existing Islamic financing instruments are all debt-instruments. This means thatdown-payment is made on real assets at a point of time with the promise of liqui-dating the remaining payment of hire and purchase over time. The contractual rate ofliquidating such payments is determined in terms of a contractual agreement betweenthe buyer (investor) and seller (asset owner) based on profit and dividends from thatreal asset. The mode of liquidating the asset value by contractual rates of periodicpayments is explained below.

Debt accumulation according to ‘Islamic’ financing instruments occurs bydelaying a proportionate payment in real asset holding according to a contractualformula of agreement to share risk and return. Yet the delay in the intertemporalpoints of payment is equivalent to a delay in the mobilizing of money into the realassets. This delay inmoney circulation across real assets causes bank saving. ‘Saving’here means financial withdrawal from potential resource mobilization.4

Thereby, since interest accrual (riba) is forbidden in Islam, the ‘withdrawal’ ofthe monetary resources has a number of deleterious effects. The ‘withdrawal’ is anunproductive activity corresponding to money circulation across real assets. Anyrate computed as return in assets during the time period of holding up monetarycirculation is tantamount to riba in its intertemporal sense real asset valuation andthe matching quantity of money. The above two effects are deleterious for the entireeconomy of inter-variable causality of the type of relations (10.2)–(10.5) and moreof the kind.

The above inferences imply that the circular causal interrelationship between Mand RE are not meaningfully grounded in a true understanding of Islamic financein the light of Tawhidi unity of knowledge. Thereby, the wellbeing perspective ofevaluating positive complementarities between the good things of life and avoidingthe unwanted ones in the light of Tawhidi principle of organic pairing does not holdup.The lawof unity of knowledge between the selected variables of expression (10.1),does not characterize the true picture underlying present days’ ‘Islamic’ financialeconomics.

The well-known ‘Islamic’ financing instruments, murabaha (mark-up),musharakah (equity), ijara (rents), bai-salam (deferred payments), istisna (manufac-turing loan) are principal ones in debt-financing. Mudarabah (profit-sharing) holds a

4Ventelou (2005).

The Existing State of Islamic Financial Instruments 205

Money (M), 1 Real Economy (RE), 2 Debt (D), 3 Interest (i), 4

f21 f31 f12 f32 f13 f23 f34 f14

1 2 3 4

f12 f13 f21 f23 f31 f32 f43 f41

RE,2 f32 f23D,3 M,1 f31 f13D,3 M,1 f21 f12RE,2 D,3 f13 f31 M,1

Fig. 10.1 Compound functional interrelations between money, real economy, debt, and interestrate according to Tawhidi worldview of unity of knowledge

En( ,z( ),t( ); interac�on integra�on ( )} H

H E1( ,z( ),t( ); interac�on integra�on ( )}

Fig. 10.2 The evolutionary learning History of events by Tawhidi unity of knowledge

marginalized benchmark position in ‘Islamic’ financing. Secondary financing instru-ments, sukuk (Islamic bond), bai bithman ajil (deferred payments by borrower inclu-sive of profits), murabaha on finance (twarruq) revolve around the primary financinginstruments.5 The debt-interest problem in relation to money and real economy inIslamic analytical conceptualization occurs in each of the above-mentioned financinginstruments. This continues to exist due to delaying of the interaction and integrationbetween money and real economy by the reduction of debt and its cost of interestalong the dynamic evolutionary learning perspective of inter-causality of unity ofknowledge between money and real economy as good choices while reducing debtand interest as the unwanted ones. This is a technical analytical issue to contendwith, which has escaped attention by the so-called ‘Islamic’ scholars.6 The missinganalytical attention is of crucial importance to alert the mind, practice and text of‘Islamic’ economics and finance into a proper direction.

According to the Tawhidi law of unity of knowledge the valuation of assetsassumes a continuous function of inter-relational decision making and asset eval-uation. Underlying these are preferences formed by interaction and integration alongcontinuous ensemble of events {E(θ, z(θ), t(θ); ∪interaction ∩integration ℘(θ)}. Theyspan the historical path of evolutionary learning HH(θ). Figure 10.2 explains suchvaluations.

The above description of the nature of existing ‘Islamic’ financial instruments thatemanate from the epistemologically benign mainstream dependent area of Islamiceconomics and finance are really not participatory instruments that could estab-lish inter-causal interactive, integrative, and evolutionary learning relations between

5Usmani (2004).6Shakespeare (2019).

206 10 Money, Debt, Interest, and Real Economy

the diverse financial instruments. Consequently also the understanding of risk-diversification and product-diversification by means of appropriate technologicalchange cannot be explained by the existing Islamic portfolio constrictions. Under-lying such limitations is an incorrectly used ahadith according to which shari’ahscholars declare that two parallel contracts cannot be used in portfolio financing. Farfrom this mistake, what the Prophet meant was that until any one binding contractis completed a second and multiple ones cannot be adopted for maintaining ethicalconduct in human affairs. Contrary rulings in the financial contract (uqud) in shari’ahhave given rise to a cluttering of views on simple issues. Some examples of sucherroneous ideas prevailing in shari’ah rulings is whether zakat should be levied onpre-tax or post-tax wealth; the shari’ah rulings to adopt debt-ridden financing instru-ments and thereby an amount of debt equal to one-third of investment; and the futileelan that all is permissible that shari’ah does not disband. This last ruling is a direcontradiction to logical inference.7 Consider the flawed reasoning: Shari’ah remainsunopposed to its various debt-ridden financial instruments. These accumulate debteconomy-wide. Would then shari’ah legitimize debt by so remaining silent on itsapproved debt-ridden instruments?

Except for the works of Ghazali in the classical Islamic literature no other Islamicwriters have invoked Tawhid as the ontological law to configure shari’ah.8 This is agross mistake of all the Islamic sects that has caused blind subservience to exclaimshar’iah as law and jurisprudence. The function and origin of shari’ahas in the Islamicliterature of all times is contrary to the Qur’anic declaration by the verse (45:18)9

7Shari’ah scholars recommend acceptance of ‘all choices’ that the shari’ah does not explicitly forbid.On the contrary, there are many examples of human concocted decisions following this perspectiveof shari’ah that do not qualify according to Tawhid as law. Yet the choices and perspectives areaccepted under the shari’ah dictum. The sharees (shari’ah practitioners) say, “Whatever Allah haslegislated through the shari’ah is lawful for all human beings and whatever He has prohibited isprohibited to all human beings until the Day of Resurrection.” (Al-Qaradawi, p. 34).

Far from this enunciation, mathematical theory states that the complementation of the universalset,� is the null set,�. Thereby, for ‘every’ set S ∈ � as topology, there are complementation setsS∼ ∈ �. The inference is that there are denumerable as many do’s as do-not’s in the universal scaleof ‘everything’. ‘Everything’ that shari’ah is silent about has opposite complementation in realitythat it does not include in its enunciation. The shari’ah judgment thus descends into an illogicalstatement.8This is the forgotten area of AAOIFI, OIC Fiqh Council, Malaysian Shari’ah Council, and thecontemporary shari’ah scholars and ulemas induced by sectarian beliefs (madhabs). See also thesame intellectual problem of absence of Tawhidi methodological foundation of Islamic law inAshur(2013), Attia (2008), Auda (2008).9The clear explanation regarding the ultimate primal ontological beginning of Islamic law of ‘every-thing’ is that if ‘shariatan’ (Qur’an 45:18) is the way to Tawhid as law, then the methodology ofTawhidi unity of knowledge concerning generality and details of the world-system means thefollowing universality of the Tawhidi law: (�, S) → θ → {(World-System)[θ] ∈ (�, S)} → (�, S).In this Tawhidi String Relation (TSR) shari’ah as theWay is denoted by {{θ → {(World-System)[θ]∈ (�, S)}. Yet the primal ontological basis of this portion of TSR is derived from the primal Tawhidiontology, (�, S) in the beginning and tends to (�, S) in the end in Akhira, te two unbounded closuresof unity of knowledge (Tawhid) in ‘everything’. The Qur’an (45:18) thereby declares: “Then Weput you, [O Muhammad], on an ordained way concerning the matter [of religion]; so follow it anddo not follow the inclinations of those who do not know.”

The Existing State of Islamic Financial Instruments 207

on the primal ontology of Tawhid. So why is there such undue clamour on shari’ahwithout the primacy and methodological foundation of Tawhid as the law?

Tawhidi Ontology of Unity of Knowledgeand the Formulation of the Generalized Systemof Meso-Relations Involving Money, Real Economy, Debt,and Interest

Basing on the previous arguments on the inadequacy of shari’ah to explain theTawhidi methodological worldview, we now divulge the following meso-economicformulation of the generalized system relationship dealingwithmoney, real economy,debt, and interest. The explanation engages the intricacies of Islamic relevance andreconstructionof Islamic economic reasoning according to meso-economic anal-ysis.Mesosciencemeans in this entirework to be the specialmethodology that is onto-logically sensitive to the endogenous (systemic) treatment of morality in the general-system study of any socio-scientific problem.Thereby, consciousness as an integratednon-physical and physical essence, that is an infusion of abstraction and applicationin substantively analytical formalism, and that result in the centrepiece of knowl-edge arising from consciousness ({θ} ∈ (�, S), X(θ); ∪intersection ∩integration ℘(θ)}as inter-causal pairing between endogenous knowledge-induced variables X(θ), isthe springhead of meso-socioscientific inquiry. Kaku (2015) writes in this regard10:“Consciousness is the process of creating a model of the world using multiple feed-back loops in various parameters (e.g. in temperatures, space, time, and in relationto others), in order to accomplish a goal (e.g. find mates, food, shelter).” Kaku refersto phenomenological consciousness as the ‘space–time theory of consciousness’. Inour work consciousness (phenomenology) is referred to in terms of the spanningover knowledge, space, and time dimensions.

How is the problem of money, real economy, debt, and interest studied in a gener-alized system approach with the catalytic impact of consciousness?—like as we canclaim that trust in human activities is a mighty social lubricant.

In the case of Islamic meso-economics, money circulation, M(r, p, C, I, X, M,Y)[θ], with r as rate of return, p as prices, Y as value of output are all taken intheir project-specific sense. In meso-economic reasoning of formulating functionsall endogenously related variables matter in the inter-causal relations. Thus thereare inter-causal relations with the variables like, C (consumption), I (investment),X (exports), M (imports). Indeed, the quantity of money in circulation positivelyaffects inter-variables relations as ethicized market transformation progresses underthe consciously induced knowledge induction (θ). The vector of variables is thus,xM(θ) = {M, Y, C, I, X · M, r, p}[θ], which fully induced by ‘θ’ as the conscious-ness driven knowledge variable. It is noted that, the M(θ)-equation emerges as a

10Kaku (2015).

208 10 Money, Debt, Interest, and Real Economy

particular circular causation equation from the Tawhidi ontological background ofinter-causality between the endogenous variables of the vector in the correspondingmoney-related wellbeing function, say WM(xM(θ)).

The meso-economic problem constructs the interactive, integrative, evolutionary(IIE) model by basing all endogenously related variables on θ-induction. Theoverall aggregations ofmicroeconomic variables intomacroeconomic variables, thuscreating meso-economic variables are caused by θ-induced preferences, {∪interaction

∩integration ℘(θ), θ ∈ (�, S)}.

Evaluation ofWM(xM(θ)) (10.8)

with the circular causation equation,

M(θ) = fM(r, p,C, I,X,M,Y) (10.9)

> 0 > 0 > 0 > 0 > 0 > 0

dM/dθ = (∂M/∂Y) · (dY/dθ) + (∂M/∂r) · (dr/dθ)

+ (∂M/∂p) · (dp/dθ) > 0 identically. (10.10)

Equation conveys the fact that money-real economy complementarity in Islamicmeso-economics is the cause and effect (feedback) of continuous interrelationsbetween real output, rate of return, the characterization of the change in the quan-tity of money in response to the prices of goods and services all taken up in theabove-mentioned preference-based formation of these variables. Then there are theconsumption and investment variables, which are activities in the TSR-dynamics ofethicized market transformation and are mobilized by choices of the life-fulfillmentneeds and by the participatory financing instruments. The variables X(θ) (export)and M(θ) denote the inter-communal economic integration in respect of estab-lishing international participation and collaboration (ummah). All the variables inthe vector, xM(θ) = {M, Y, C, I, X · M, r, p}[θ], are meso-economic variables byvirtue of their underlying choice formation by preferences, menus, and participatorydecision-making in the face of θ-induction and ethicized market transformation.

The comprehensive meaning of ethicized money-real economy transformationought to be understood in the context of Eqs. (10.8)–(10.10). It is the unity of knowl-edge conveyed by the total system of inter-variable circular causation relations thatevaluate (estimate and simulate) the wellbeing function according to the Tawhidiontology of unity of knowledge. In this regard the other circular causation equationsare, the qur’an emphasis on the good uses and consequences ofmoney inwellbeing.11

11The Qur’an (18:19) declares: “And similarly, We awakened them that they might question oneanother. Said a speaker from among them, “How long have you remained [here]?” They said, “Wehave remained a day or part of a day.” They said, “Your Lord is most knowing of how long youremained. So send one of you with this silver coin of yours to the city and let him look to which is

Tawhidi Ontology of Unity of Knowledge … 209

Likewise, in the expenditure sector of spending as a consciously induced activityin the good things of life according to the Qur’an,12 the expected expression with theappropriate signs appears as the spending function as follows: The correspondingvector of spending related variables in the spending-related wellbeing function isxsp(θ) = {Sp, C, I, X, M, Y, r/i, p, M}[θ], where Sp(θ) denotes spending variableas endogenous variable. Other variables were defined earlier. It is the replacementof expenditure variable as exogenous Government expenditure variable, because inthe discursively participative learning evolution of Islamic meso-economy there istransformation from institutional policy imposition to increasing modes of instillingconsciousness by preference induction with knowledge formed by interaction, inte-gration, and evolutionary learning. Government then transforms progressively intoa participant with the growing market economy with conscious ethical induction.

The resulting wellbeing and its inter-causal relations between the variables ofthe vector xsp(θ) = {Sp, C, I, X, M, Y, r/i, p, M}[θ] has important relationshipwith interest rate and debt in the context of money and real economy as earlierdefined in the symbiotic sense of multivariate inter-causality. Thus we investigatethe complementary influence of θ-variable as knowledge induced by consciousnessof unity of knowledge of the paired (positively complementary) variables.

Consider the following circular causation equations arising out of the evaluationexercise of the wellbeing function:

Sp(θ) = Sp(C, I,X,M,Y, r/I, p,M)[θ] (10.11)

M(θ) = M(C, I,X,Sp,Y, r/i, p,M)[θ] (10.12)

These variables are all positively related. Then in respect of the definition of thequantity of money as the value of spending in the (M, Sp)[θ] sense continuouslyfor all θ-values as ontologically premised in (�, S), the inter-variable complemen-tarities well-define the nearly perfectly equivalence of the macroeconomic IS andLM curve. The margin away from perfect elasticity of the resulting curves is dueto the incompleteness of learning caused by θ-induction. The stark difference of the(Sp, M)[θ] from the IS and LM curves is dueto the meso-economic multivariatecomplementarities.

The characterization in Fig. 10.2 of events in knowledge, space, time dimen-sions continuously spanning the History HH(θ) results in continuously simulta-neous near perfect elasticity curves of (M, Sp)[θ] in terms of their inter-variablescircular causation relations under the meso-economic pervasive effect of {θ}. Sucha pervasively complementary result occurs in the mentioned dimensions, rather thansimply in space–time dimension, though a passing attention is given to the inclu-sion of knowledge, but not to consciousness in general equilibrium study by Keunne

the best of food and bring you provision from it and let him be cautious. And let no one be awareof you.”12Qur’an (57:11): “Who is it that would loan Allah a goodly loan so He will multiply it for him andhe will have a noble reward?”.

210 10 Money, Debt, Interest, and Real Economy

(1993), Romer (1994), Turnovsky (1997), Colander (2006), Stehr (2002) on knowl-edge, learning, and information.13 Gafford 14 has used the Schumpeterian growthdynamics to argue that technological injection at the point of full-employment levelof output would extend the non-inflationary real output level but entail short-termtechnological adjustment cost. This agrees with our explanation that consciousnessknowledge variable ‘θ’ could result on the choice of an ethically appropriate tech-nology that could enable the complementarities between all the variables and therebymake the (M, Sp)[θ]-relationship near perfectly elastic. The dimension of knowledgeemanating from consciousness induces the inter-variable complementarities with theproperties of interactive, integrative, and evolutionary learning in endogeneity.

The implication of the above type of transformative change in the (M, Sp)-relationship intensifies the progressive reduction of debt that is presently embodied inthe so-called ‘Islamic’ financial instruments. Instead, the replacement of such debt-ridden instruments by participatory instruments in the comprehensive definition ofthe real economy by pervasively expanding complementarities in the context of unityof knowledge continuously links up the flow of money into spending and pursues thefeedback relationship, as in the exchange equationof quantity theoryofmoney.Thus acontinuous evolution of (M,Sp)[θ] occurs along the corresponding near-elastic paired(complemented) curves even as consciousness of unity of knowledge increases basedon the Tawhidi primal ontology. The further explanation of such adjustment result isthat debt ridden financial instruments a gap in redeeming payments for certain time.During this time the outstanding unpaid payment is tantamount to withdrawal for thefinancing institution, which in turn is liability in the accounting of potential output.Such withdrawals thereby accumulate into economy debt. The delay in redeemingthe debt outstanding for a time remains unproductive if no return is calculated onit during the time-period. Or the debt would have an intertemporal cost, which issimply the rate of interest viewed intertemporally. The critical point to note in suchvaluation of assets is that, while for business planning purposes it is legitimate toformalize the future valuations at all points in time as potential ‘nearest points’ ofvaluation of assets, yet it is the actual rate of return existing in the vicinity of the‘nearest point’ that will be accepted as the rate. Thereby, the difference betweenthe corresponding accruals will be shared between the agents in the transactions.Yet overall, the intergenerational valuation formula will prevail. This will replacethe present-valuation, internal rate of return, and absence of intertemporal futuristicformulas by atemporal ones that are presently used by Islamic banks.

13Keunne (1993), Romer (1994), Turnovsky (1997), Colander (2006), Stehr (2002).14Gafford (2009).

Monetary Policy Emanating from (M,Sp) Complementary Relationship … 211

Monetary Policy Emanating from (M, Sp) ComplementaryRelationship via the Circular Causation Relations

Thenear perfect elasticity relationship betweenmoney and spending canbe explainedby what is referred to here as the 100% reserve requirement monetary system. Therelationship is given by, Mv = p · T = p · y, with p has the aggregate price level,T as transactions meaning the number of times that a dollar of transaction changeshands in the exchange of money, goods and services. ‘y’ is the real income (output),best measured by national income. ‘v’ is the speed with which a unit of money incirculation changes hands during the exchange of goods and services; 0≤ v≤ 1. Butthe above identity between money and spending runs into problem of inter-causalitybetween money and prices, as it remains indeterminate which initially affects theother.15 Besides, in the moral/ethical meso-economic essential of Islamic economictreatment the important determining component of consciousness embedded viaknowledge parameter of unity of knowledge is not explained in the quantity ofmoney. Yet this factor of monetary mobilization is critical in explaining Islamicconscious transformation by the Tawhidi methodological worldview. We therebywrite the corresponding money-spending interrelations by their circular causationrelations arising in the problem of evaluation of the wellbeing objective criterion, asgiven earlier between the various variables. The same system of circular causationrelations will yield prices in terms of the remaining variables. In this price-relationmoney and spending are coincident by their unique elasticity, and the other variablesare complementary. Thus M, Sp, and p variables are replaced by the essentialityof circular causation relations in the meso-economic construct of inter-variablesand inter-causal explanation of Tawhidi unity of knowledge.The circular-causationrelations complementing all such variables convey the substantive meaning of thereal economy and thus the money and real economy relationship with debt beingreduced to near nullity. Thereby, the rate of interest in all its forms is phased outcorrespondingly towards zero.16

The underlying monetary arrangement is explained referred to here as the 100%Reserve Requirement Monetary System with the Gold Standard. This monetaryand real economy interrelationship facilitates the wellbeing objective and circularcausation relations mentioned above.

15Laidler (1989).16The analytical problem of trade versus riba is unresolved in the intertemporal context in Islamiceconomics and finance. Consequently the planning of pricing and sustainability of assets foreconomic and social futures does not have an analytical theory for economy-wide moral-materialembedded valuation. Myrdal referred to this comprehensive conception of valuation as the ‘widerfield of valuation’. See Myrdal (1968). The injunction of the Qur’an (2:275) overarches all vestigesof meaning of trade versus riba. Also in the intertemporal sense the Qur’an declares (3:130), “Oye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really)prosper.”

212 10 Money, Debt, Interest, and Real Economy

Monetary Transmission in the 100% RRMS

Theabove schemaofmoneyflowas resource between themonetary sector and the realeconomy and its continuous circularity in the economic system brings out the vestingof the 100% reserve with the commercial bank. This occurs when deposits saved inthe commercial banks are continuously recycled into the real economy to attain thesubstantive inter-causal relations between critical variables as was explained earlier.This is the ideal rule of monetary circulation under the 100% RRMS. The speedof money circulation in this regard depends upon prevailing demand for real goodsand services by households, the private sector, governments, and global partners ininternational trade. Market process of such continuity is promoted. We refer to thiskind of participatory interrelationship according to the objective criterion of evalu-ating the wellbeing function, subject to inter-variable circular causation in the globalsense of intra-systemic and inter-systemic trading relations by M(money), Finance(Spending), Real Economy continuity of processes/Thus M-F-RE in continuum ofconsciousness (knowledge), projects (space), and time (t as processes).

The result of the 100% RRMS is to sterilize monetary authority in the CentralBank, except as a case of exigency of meeting demand for a quantity of moneyand a reserve to secure an excess quantity of money as these are determined in theendogenous interrelations between the commercial banks and the real economy assubstantively defined. It is to be further emphasized that the circulatory reign ofmoney is both across material entities and the ethically inclusive entities as these aredenoted by their specific variables. This returns us to the central role of conscious-ness as being embedded in the aggregation defined by interaction, integration, andevolutionary learning nature of preferences that span from microeconomic level tothe economy-wide level. This indeed is the feature of meso-economic and meso-sciencetheoretical focus on aggregation. According to this aggregation of preferencedynamics there is need to include the abstracto-empirical explanatory component in

Monetary Transmission in the 100% RRMS 213

the exchange equation of quantity theory of money.17 Note that aggregation by func-tional compounding instead of lateral addition is because of the inter-variable evolu-tionary learning caused by interaction and integration between the project-specificsystems.

It is possible, and recommended for simplicity and specification of money-realeconomy interrelations for separate projects that money chases to evaluate the well-being functions for each of these and then functionally compound them to arrive atthe joint wellbeing function. This is done as follows:

In respect of the various projects denoted by i, j = 1, 2, …, n; i �= j, theircorresponding wellbeing objective criterion functions are,

EvaluationWi(Z(θ)), i = 1, 2, . . . , n

Subject to circular causation relations between the variables of z(θ)-vector= {Sp,C, I, T, Y, r/i, p, M}[θ], T(θ) denotes net trade induced by the moral consciousnessand knowledge of the good things of life while avoiding the bad things of life. Ofthese systems of circular causation by project specificity there is themoney-equation,

Mi(θ) = fMi(Sp,C, I,T,Y, r/i, p}[θ]. (10.13)

This monetary function is equivalent to the expression Mij(θ) shown in thepreceding footnote. Though with the resulting quantity of money arising frominter-monetary circulation by projects being denoted by, Mi(θ), i = 1, 2, …, n.

Thereby, the compounded joint wellbeing function W(θ) is given by,

W(θ) = [W1(z1) • W2(z2) • · · · • Wn(zn)][θ]. (10.14)

17Mv= p · T= p · Y is replaced by [Mv= p · T= p · Y][θ]. The overall induction of consciousnessin the formation of knowledge having its central moral and ethical valuation meaning in paired,i.e. participatory and complementary endogenous inter-variable interrelationship reflecting unity ofknowledge. This is the primal ontological worldview methodology of Tawhid and unification byorganism as symbiotic oneness. We therefore write explicitly, �ijMij(θ)vij(θ) = �ijpij(θ) * Yij(θ)conveying the meaning that, project specific monetary circulation by their respective velocities withthe tendency of vij → 1 as θ↑; i, j = 1, 2 , …, n denoting interacting and integrating projects asevolutionary learning proceeds on. The abstracto-empirical valuation of moral/ethical elements isdone by enumerating such variables as charity, trust, poverty alleviation, happiness etc. in termsof their corresponding choices of variables that enable inter-variable circular causation relationssignifying organic unity of knowledge as ontologically driven by Tawhidi unity of knowledge andthe generality and particularity of the world-system. In this case the world-system of study is money,real economy, and moral/ethical inclusion. On such ethical configuration of diversities of thingsthat are invoked by moral/ethical values, the Qur’an (6:99) declares: “It is HeWho sends down rainfrom the skies: with it We produce vegetation of all kinds: from some We produce green (crops),out of which We produce grain, heaped up (at harvest); out of the date-palm and its sheaths (orspathes) (come) clusters of dates hanging low and near: and (then there are) gardens of grapes, andolives, and pomegranates, each similar (in kind) yet different (in variety): when they begin to bearfruit, feast your eyes with the fruit and the ripeness thereof.Behold! in these things there are signsfor people who believe.”

214 10 Money, Debt, Interest, and Real Economy

The evaluation and quantitative form (estimation and simulation) of each of theseproject-specific wellbeing functions is given by its own full system of inter-variablecircular causation relations. There can be many more bifurcations of the individualwellbeing functions by virtue of intra-systemic and inter-systemic organic interrela-tions. The result is cybernetic complexity. However, such complexity can be simpli-fied by means of the circular causation relations and by the quantitative results of thereduced wellbeing functions and their compounding.

Figure 10.4 depicts the compounding of disaggregate wellbeing functions in thesimple case of {W, W1, W2, W11, W12, W21, W22, …}[θ]. Although obvious byits cybernetic evolutionary nature, the two-way arrows mean that such complexityexplains how interactive, integrative, and evolutionary learning circular causationrelations explode over the multivariate case in the topological geometry of knowl-edge, space, and time dimensions. Yet such complexity is simplified for evaluationby the circular causation equations of each wellbeing function. The cumulative eval-uation of W(θ) can then be attained by compounding of the disaggregate wellbeingfunctions.

By keeping in view the footnote explanation of disaggregate formulation of theexchange equation of quantity theory of money, output, and prices, the best case ofmoney-real economy is the case 1 shown in Fig. 10.3. In such a case the CentralBank and the commercial banks do not hold fractional reserve requirements by thereserve ratio. Excess Reserve Requirement is 100% with all the deposits vested withthe central bank for continuous circulation in economy at large. Since the CentralBank holds no reserve in this case there is no gold created to secure the currency

Central Bank interven�on to create marginal gold stock to stabilize created stocks, L2. L

3,

and thereby total monetary circula�on by financial instruments in RE. Yjus

, finally, v 1

(2) Mv>py [Mv – L1 = py]( ) (3) Mv<py [Mv + L

2 = py]( )

(1) Mv = py, v 1 L

1, L

2 = 0

Saving by Mobiliza�on of Household excess reserve in Business the Real Economy Na�onal: S

0 morally/ethically

Deposit with endogenous with Commercial banks Material choices: {X( )} Circula�on of excess reserve by

Money-Finance-Real Economy endogenous complementari�es (M-F-RE-M-con�nuity)[ ]

Fig. 10.3 Monetary transmission in 100% reserve requirement monetary system of (M-F-RE)[θ]endogenous complementary relations

Monetary Transmission in the 100% RRMS 215

value of the quantity of money in circulation. In the ultimate circulatory case ofsuch money-real economy integration, vi(θ) → 1, i = 1, 2, …, n. Thereby in theeconomy-wide sense, v(θ) → 1 with a given probability. Exact equality of v(θ) = 1is neither necessary nor feasible in the midst of diversity of projects. Thus case 1 inFig. 10.3 stands at [Mv = p · y][θ], with no correcting monetary flow between theCentral Bank and the commercial banks, i.e. L1 = 0, L2 = 0.

In case 2 of Fig. 10.3, [Mv > p · y][θ]. This means immobilized quantity ofmoney into the real economy by the commercial banks. Thereby that quantity ofmoney, L1, is withdrawn and placed as reserve with the Central Bank so as to avoidthe possibility of fractional reserve requirement that would otherwise ensue interestregime of transactions, a situation contrary to qur’anic law. The 100% RRMS isrestored at a lower level of economic activity, [Mv−L1 =p · y][θ]. But this situation isshort lived as the economic and ethical activities revert to higher levels in the Islamicsocial economy.

In the short run of time as long as L1(θ) is held at the Central Bank for prospectivematerial and ethical purposes (denoted by the consciousness of ‘θ’), the Central Bankcreates a proportionate amount of gold to protect the currency value that remains inits custody and the amount which circulates in the state of the economy. Then as theeconomic recovery draws down the amount in Central Bank custody the quantityof gold required for currency stability also declines. The important inference hereis that, the quantity of money required for trade in the real economy is inverselyproportional to the quantity of gold produced in the Central Bank. Consequently,the seigniorage, the amount of gold produced in Central Bank, and the quantity ofmoney held by Central Bank are inversely related to the rising volume of trade andeconomic activity in the absence of interest and thereby monetary liquidation of debtby money in circulation economy-wide.The amount L1(θ) is thus finally liquidatedto satisfy the demand of the real ethical economy.

Case 3 requires additional quantity of money, L2(θ), to meet the excess demand ofthe prosperous real economy thanwhat the commercial banks can satisfy. TheCentralBank and commercial banks share in the project-specific returns of the commercialbank activity in the real economy while the loanable fund is returned to the CentralBank by the commercial banks. The 100% RRMS is restored by the relation, [Mv +L2 = p · y][θ]].

Trade (T(θ)), Gold (G(θ)), Monetary M(θ), Spending (Sp(θ)),Interest Rate (i) and Debt (D) Interrelationships

The interrelationship between the variables of x(θ) = {T, G · M · Sp, i, D}[θ] in theperspective of Islamic meso-economics is not afforded by mainstream economics.That is because, the fractional monetary system abides in the money-real economy;

216 10 Money, Debt, Interest, and Real Economy

and the conception of 100%RRMS is accorded to the Central Bank instead of thecommercial banking system.18

In the 100%RRMS the following relations can be explained:

+ + + + + − −W(θ) = W(Y,M,Sp,G,T, i,D)[θ], (10.15)

as θ↑ ∈ (�, S), and with choices of preferences, {℘ = ∪interaction ∩integration ℘s(θ)}by the medium of interaction, integration, and evolutionary learning in the super-cardinal topology of Tawhid and the world-system. Thus choices and preferencesare determined by ‘s’ spanning knowledge, space, time dimensions.

G denotes a quantity of gold in respect of the 100% RRMS. T denotes net trade.‘i’ denotes interest rate in any of its forms. ‘D’ denotes debt outstanding. Each ofthe variables is in circulation causation with the rest of the θ-induced variables. θ-induction ‘i’ and ‘D’ is inversely to these variables as these variables are positivelyrelated within them and negatively with the rest of the variables in their respectivecircular causation relations.

Equation (10.15) yields the following relations:

dM/dT > 0 as the meaning of money-real economy in the sense of its

circulation in the economy at large explained by 100%RRMS. (10.16)

dM/dG < 0, as a withdrawal of money in circulation from the real economy must

18De Soto, J. H. (01/28/2019). “Mises’s proposals for a 100-percent reserve requirement”. https://mises.org/wire/misess-proposals-100-percent-reserve-requirement. Ludwig von Mises spear-headed the proposition on 100%RRMS. De Soto points out: “According toMises, the ideal solutionwould thus be to establish a system of free banking (i.e., without a central bank) subject to traditionallegal principles (and hence, a 100-percent reserve requirement). In this book Mises accompanieshis defense of a 100-percent reserve requirement with his objection not only to the central bank,but also to a fractional-reserve free-banking system: although such a system would greatly limit theissuance of fiduciary media, it would be inadequate to completely eliminate credit expansion northe recurrent booms and economic recessions which inevitably come with it.”

In the appendix, “Monetary reconstruction”, The Theory of Money and Credit, von Mises, trans.J. E., Bateson. Signalman Publishing, Orlando, U.S.A. 2009, writes, “The main thing is that thegovernment should no longer be in a position to increase the quantity of money in circulation andthe amount of checkbook money not fully—that is, 100 percent—covered by deposits paid in bythe public.”

On the contrary understanding of Central Bank operated 100% RRMS here is an explanationrendered by Mitchell, B. (Jan 12, 2010). “100-percent reserve banking and state banks”, https://bilbo.economicoutlook.net/blog/?p=7299: “a 100-percent reserve banking system would allow thegovernment to control the money supply and hence maintain price stability. This is because allmoney would be created by the national government in this system. Banks would not be able tocreate deposits by extending loans.”

These observations are similar to the one we are presenting but having no concern regardingethical contribution that money circulationmakes to the social economy. To circumvent this missinggapwe included the substantive epistemological relevance of organic unity of knowledge emanatingfrom Tawhidi primal ontology.

Trade (T(θ)), Gold (G(θ)), Monetary M(θ), Spending (Sp(θ)) … 217

be held with the Central Bank. The Central Bank in turn creates a volume of

gold to stabilize the value of money so held and also that which is circulated residually.(10.17)

dG/dT < 0; for the reasons of(10.16) and (10.17). (10.18)

dG/dY < 0; for the reasons as above. (10.19)

dS/dD > 0,with ‘S’ denoting savings. (10.20)

This relation is due to the withdrawal effect that ‘D’ has on equity formation; and‘S’ has on withdrawal from the money-real economy relationship of 100% RRMS.

dS/di > 0, by the positive relationship between ‘i’ and ‘D’. (10.21)

dS/dY < 0. Keynes always thought of savings as having negative effect in the incomemultiplier contrary to the positive effect of injections into the economic activity.19

dM/dD < 0 (10.22)

due to the withdrawal effect of D on equity formation by the circulation of money inthe money-real economy relationship of 100% RRMS.20

dT/dD < 0 by similar argument. (10.23)

dT/di < 0 by similar argument. (10.24)

dG/dD > 0 as D being contrary to equity formation in the money-real economy and

G being positively related to withdrawal of immobilized financial resources by

the Central Bank. (10.25)

dG/di > 0, as less productive resource is mobilized in the real economy.

Thereby, if ‘i’ were exist as in the case of dual monetary system, there would be

tendency toward bank saving. (10.26)

dS/dG > 0, as bank saving being potential withdrawal from the money-real

economy is resource available with the Central Bank.

19Ventelou (2005).20Modigliani and Miller (1958).

218 10 Money, Debt, Interest, and Real Economy

This amount of Central Bank deposit must be protected by an amount of G

created in the Central Bank and paid for by seigniorage. (10.27)

dY/dG < 0 for similar reason in the money-real economy with 100%RRMS.

(10.28)

dS/dT < 0 for similar reason as above. (10.29)

dS/dM < 0, dS/dY < 0 for reasons of negative relationship between bank saving

as withdrawal from monetary circulation in the real economy and thereby its

contribution to economic activity. (10.30)

Stability of Exchange Rate of Currency in Circulationin 100% RRMS

From the above discussion of the multivariate interrelationship of a quantity of goldcreated by the Central Bank, commercial bank, and real economy relationshipwe cannow answer the question: How is the value of currency in circulation stabilized bya decreasing amount of gold as the real economy and commercial bank relationshipintensifies?

We note that, in respect of attaining stability of the inter-causal variables of thewellbeing function, the determination of exchange rate stability is an endogenousproductive consequence. We prove it as follows: Consider the money function, M =M(Y, G, e)[θ]. We derive the following relation:

because of the above-mentioned money relation.

< 0 < 0 (> 0 < 0) :< 0

dM/dG = (∂M/∂G) + (∂M/∂Y) · (dY/dG) + (∂M/∂e) · (de/dG) < 0,(10.31)

Therefore,

(Signs positive or negative but identically)

λ2 < (∂M/∂e) · (de/dG) < λ1, (10.32)

with (λ1, λ2) as endogenous policy determined limits of the band of variation ofexchange rate ‘e’ in respect of variations in G and the quantity of money circulation,M in the 100% RRMS (Fig. 10.4). Such endogenous policy simulations are deter-mined by the discursive interrelationship involving exchange rate, terms of trade,

Stability of Exchange Rate of Currency in Circulation in 100% RRMS 219

Fig. 10.4 Complexcybernetic disaggregation ofwellbeing indexes W11 W22

W12 W1 W2 W21

W

and export/import ratio of jointly managed projects of n-number of countries in thetrading and development bloc, such as the ummah.21 The endogenous policy simu-lation works by noting that G (amount of gold) and M (money in circulation) areinversely related in the 100% RRMS. This result is felt in the real economy where Mcirculates to increase economic activity (Y). Such consequences in economic activityadvance trade, and more so in an integrated economy as expected of the ummah, theworld nation of Islam. In a productive economic transformation it can be shown that,e = t * (EX/IM). For jointly managed projects between exporting and importingcountries, the ratio (EX/IM) will have a stable trend caused by endogenous managedcontracts.

Finally, the relationship of (i, D) can be tied up with the relation concerningexchange rate stability in the money equation with the gold numeraire 100% RRMS.Since ‘i’, ‘D’, G are positively related and thereby negatively with M in circulationand Y activity, therefore expression (10.32) and its explanation regarding e-stabilityby expression (10.32) implies that, ‘I’and ‘D’ destabilize the exchange rate out ofthe endogenously simulated band (λ1, λ2).

21We can prove the market-institutional driven nature of relationship between exchange rate, e, andthe terms of trade, t, in terms of the export prices, p(EX), import prices, p(IM), with EX as exportsand IM as imports.

e = Currency (national)/Currency (international).= value of spending in exports/value of spending in imports.= p(EX) · X/p(IM) · IM.= p(EX)/p(IM) · (EX/IM).= t · (EX/IM).Finally we obtain, e/t = EX/IM.The relative price, e/t is driven by market-institution interrelationship in the 100 RRMS. This

feature is shown by the presence of EX and IM.Note for multi-country trade the effective exchange rate, e = ∑n

i=1ei · (Ti/T), where ei denotescurrency-specific exchange rate for i = 1, 2, …, n; Ti denotes country-specific trade; T is total tradeof all countries taken together.

220 10 Money, Debt, Interest, and Real Economy

Conclusion

Islamic economics and finance as an imitation of mainstream economics in everyrespect, most importantly never inquiring into new dimensions, rather carrying theoccidental liberal and neo-liberal epistemology could not render anything substantiveto the world of academia. This failure was partly because the gurus of this project didnot have the originality to invoke the ontological foundation of Tawhid as law in theirunderstanding of the critical realism of the generality and details of world-systems.Within the grand world-system shaped, governed and expanded by Tawhid as lawoverarching the organically intra-system and inter-system fields of economics andfinance could not be understood for too long now. Only the problem of such intellec-tual oblivion and incapability compounded. Instead, the gurus and practitioners ofIslamic thought were overwhelmed by the shade of the shari’ah, contrary to the inex-orable expanse of the primal ontological methodological worldview of Tawhid asthe law of ‘everything’. The problem underlying such Tawhidi emptiness in Islamicintellection has been pointed out in the Introduction to this book.

The primal ontological foundation of Tawhid arising from the Qur’an and sunnahspreads out its methodological worldview over the generality and details of ‘every-thing’. Within this vast scope of intellection is the true and potentially revolutionaryfield of Islamic economics, finance, science, and society. In this chapter the veryimportant problem of wellbeing creating circular causation relations in the details ofmoney and real economy was studied to bring out the theory and approach for theannulment of debt. The chapter also pointed out that without the avoidance of debt,there is no robust theory of avoidance of interest in all its forms. In fact, the sectarian(madhabi) opinion (fatawa) on debt has been permissibility to hold one-third of totalinvestment. No worthy explanation can be found for such a fatawa in the Qur’an andsunnah.

In fact Prophet Muhammad’s instruction on debt goes like this:“We were sittingwith the Messenger of Allah (peace and blessings of Allah be upon him) when heraised his head towards the sky, then he put his palm on his forehead and said:“Subhaan-Allah! What a strict issue has been revealed to me!” We remained silentand were afraid. The following morning I asked him, “O Messenger of Allah, whatis this strict issue that has been revealed?” He said, “By the One in Whose hand ismy soul, if a man were killed in battle for the sake of Allah, then brought back tolife, then killed and brought back to life again, then killed, and he owed a debt, hewould not enter Paradise until his debt was paid off.” Classed as Hasan by al-Albaniin Saheeh al-Nasaa’i, 4367.

In the light of the above Islamic injunction this chapter has explained the theoryand the way how debt and the most detailed meaning of interest embodied in debtcan be avoided by means of the Tawhidi law of unity of knowledge between theorganically complementary variables of the wellbeing function that links with the100%RRMS. The message here is of a universal nature at a time when say the

Conclusion 221

International Monetary Fund is advocating for a new international financial archi-tecture.22 Finally note that the often spoken Gold Dinar as Islamic currency will failto realize the 100% RRMS. Gold Dinar is treated as an investment item that richshareholders buy and capital surplus Muslim countries invest in.23 100% RRMS isbased on themoney-real economywellbeingmodel with its extensive meaning of thereal economy in Islamic socio-economic transformation. The Gold Dinar has noneof these.

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Attia,G.E. (2008).Towards realization of the higher intents of Islamic Law: A functional approachofMaqasid as-Shari’ah. Herndon, VA: International Institute of Islamic Thought.

Auda, J. (2008). Maqasid Al-Shari’ah as philosophy of Islamic Law, a systems approach. Herndon,VA: International Institute of Islamic Thought.

Billington, M. O. (2002). Gold Dinar: An economic and strategic response to chaos. ExecutiveIntelligence Review (internet version), Nov. 15.

Choudhury, M. A. (2010). Unity of knowledge versus Kant’s heteronomy with a reference to theproblem of money, finance and real economy relations in a new global financial architecture.International Journal of Social Economics, 37(10), 764–778.

Choudhury, M. A., Pratiwi, A., & Hossain, M. S. (2019). From the ontology of tawhid to Islamicsocial finance: Conceptualization and application. In V. Cattelan (Ed.), Islamic social finance,entrepreneurship, cooperation and the sharing economy (pp. 11–34). London: Routledge.

Colander, D. (Ed.). (2006). Post-Walrasian economics: Beyond the dynamic Stochastic equilibriummodel. Cambridge, Eng.: Cambridge University Press.

Gafford, J. (2009). Innovation, competition, and growth: Schumpeterian ideas within a Hicksianframework”, inCantner, U. In J. Luc Gaffard & L. Nesta (Eds.), Schumpeterian perspectives oninnovation, competition, and growth (pp. 7–24). New York, NY: Springer.

Kaku, M. (2015). Consciousness—A physicist’s viewpoint. In The future of the mind (Chapter 2).New York, NY: Anchor Book.

Keunne, R. E. (Ed.). (1993). General equilibrium: Space, time, money. New York, NY: New YorkUniversity Press.

Laidler, D. (1989). The quantity theory is always and everywhere controversial—Why? AtlanticCanada Economic Papers, 18, 98–122.

Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance, and the theory ofinvestment. The American Economic Review, 48(3), 261–297.

Myrdal, G. (1968). The wider field of valuations. In The Asian Drama, an inquiry into the povertyof nations (Vol. I, pp. 71–125). New York, N.Y: Pantheon.

Romer, P. M. (1994). The origin of endogenous growth. Journal of Economic Perspectives, 8(1),3–22.

Shakespeare, R. (2019, online visited July 29, 2014). The Prophet vindicated. In Paper Presentedat the Ahlulbayt World Assembly of Islamic Republic of Iran, Tehran, May 27–30, 2014.

Stehr, N. (2002).Knowledge and economic conduct: The social foundations of the modern economy.Toronto, ON, Canada: University of Toronto Press.

22Choudhury (2010).23Billington (2002).

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Tobin, J. (1947). Liquidity preference and monetary policy. Review of Economics and Statistics, 29,May, pp. 124–31.

Turnovsky, S. J. (1997). International macroeconomic dynamics. Boston, USA: The MIT Press.Ventelou, B. (2005). Economic thought on the eve of the general theory. In: Millennial Keynes(Chapter 2). Sharpe, Armonk, New York: M.E.

Usmani, M. T. (2004). An introduction to Islamic finance. Karachi, Pakistan: MaktabaMa’ArifulQur’an. Online (visited July 29, 2019). https://islamicmarkets.com/education/bai-bitatedhaman-ajil.

Chapter 11Conclusion

Abstract ThisConclusionbrings together themost original and significant contribu-tion of this work. This contribution in the field of meso-economics and mesoscienceis for both Islamic economics and finance and conventional economics. much morecan be developed from these contributions. Themost profound focus is in delineatinghow Tawhid as the monotheistic law of the Qur’an explains ‘everything’ in details.This realism is far beyond the human-concocted cluttered nature of any other aspectof what is termed as Islamic law.

The vast potentiality of the original field of Islamic economics and its relevance tothe budding theory of oneness in ‘everything’ is a generalized field of ontologicalinvestigation that is mighty in its full scope of entirety. Such entirety spans both themethodological groundwork, its formalism, and its subtle application. The vastnessof the ontological comprehensiveness of this new and entire scope of science andsociety across the moral and ethical applications has been shown in this book interms of the emergent new field of meso-economics as mesoscience. This particularfield of comprehensiveness while it is explained in methodological, analytical, andapplied ways with respect to the moral and ethical substance of the unified essence ofeconomics, science and society, is equally vast across all of transdisciplinary extant.The central symbiotic essence of such an incessant field of meso-scale in everythingis carved out and applied by the methodology of unity of knowledge. The substantivelogic and nature of this methodology is complete only in respect of the ontologicalbeginning and end of monotheistic oneness. It is fully explained in terms of thesynergistic ontological worldview of Tawhid as law. It misses out nothing and isfully explicable for ‘everything’. Tawhid as law unravels a fully explainable natureand logic of all things. Thus, while the imminent study is contained in the field ofmeso-economics, this embedding is contained in ‘everything’ across the realm ofmeta-science.

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5_11

223

224 11 Conclusion

Such an all-comprehensive, transdisciplinary, and translucent field of meso-economics explained by the methodology of Tawhid as monotheistic law of unity ofknowledge could not be explained in any way by the theocratic and sectarian humanconcocted nature of shari’ah. The failure of shari’ah has been due to its misinter-pretation of equivalence with the ultimate law of Tawhid. None of the books ofshari’ah studied by this author has shown the primacy of Tawhid as the ultimate lawand its functioning in respect of the origin, continuity, and sustainability in shari’ah.Shari’ah and thereby its juristic understanding by sectarian schools (madhab) havealtogether dimmed the vastness of vision of theTawhidi law. In the years following theclassical school of qur’anic thought in the school of epistemology the overweeningreign of shari’ah gradually discarded Tawhid as the ultimate law of oneness. Theresulting narrowness of the misconstrued shari’ah and fiqh decreased the scope ofthe qur’anic methodological worldview to crass outlook that came to dispossess theTawhidi worldview and its entirely governing nature of the world-system. Today aswe stand in the threshold of regaining the lost qur’anic meso-world-system in theframework of Tawhidi law, the true Muslim scholarship has fallen into desuetude.

Thereby, the Muslim world under the governing shadow of sectarian views oftrue qur’anic reality in terms of its ontological completeness, continuity, and indis-pensable sustainability. Islamic economics, science, and society as imitated frommainstream ideas have failed to be original, productive, and to cast itself in the well-being objective criterion for all and in ‘everything’. Themoral core of the objective ofwellbeing objective (maslaha) contrary to themethodological pursuit of moral exclu-siveness, such as exclusiveness of growth contrary to wellbeing, optimization of indi-vidualism contrary to the participative worldview, and the like, have left the shari’ahbasis of economic, social, and scientific reasoning in moral benignity. Shari’ah andits associated implications have failed to be explained how shari’ah is functionallyderived from the Tawhidi primal ontological premise and how it is sustained andapplied in knowledge, space, and time dmensions.

One of the deleterious consequences of the above kind has resulted in a completeunawareness among Muslims, particularly of the modern mainstream era regardingthe generalized endogenously interconnected worldview and its explanatory world-system. These profound consequences in analytical phenomenological worldviewhas been the substantive accomplishment of this work. The bold and penetratingmarch into the realm of abstraction and unravelling reality with the full force ofanalytical depth has thus been a qur’anic work. Shari’ah is eschewed, for its assumedprimacydoes not hold realism in anypart of reality. The unfortunate nature of growinginfraction in qur’anic scholarship in the face of sectarian worldview of shari’ah hasmultiplied by its unwanted enforcement by the clamor of misconstrued groups andinstitutions.Demeaning examples in such a case are the shallowknowledge of Islamicbanks, IslamicDevelopment Institutions, and the fractured nature of sectarianism thattoday reign over the heart, mind, and design of Islamic educational institutions. Theseweaknesses today form the visage of the marketplace of the gods of shari’ah contraryto the inescapable and infallible power of Tawhid as the entire and final law.

11 Conclusion 225

Fig. 11.1 The extensive embedding by intra- and inter-causality of the generalized world-system

In conclusion we depict here the non-Cartesian generalized form of the abstracto-empirical universe that outlines the non-linear and complex endogenous rela-tions embedded in symbiotic intra- and inter-causality. Indeed, the creative inter-relationship in the formof systemic and entity symbiotic complementarity as endoge-nous oneness has been explained in the abstract intellectual part of this work. Theexplanation of such abstraction in materiality forms the phenomenological explana-tion of the abstracto-empirical substance. Now the same nature and logic of the gener-alized world-system ofmeso-science, and thereby the subtle generalized formulationof meso-economics are depicted by particularity in Fig. 11.1.

In mesoscientific perspective of Fig. 11.1 the Fig. 11.2 explains the same under-lying properties of the Interactive, Integrative, and Evolutionary Learning worldviewas a geometrical non-Cartesian Fractal of mesoscience. It can be particularly appliedto the abstracto-empirical nature of meso-economics embedded in the ontology ofTawhidi unity of knowledge across ‘everything’.

226 11 Conclusion

Fig. 11.2 The property of intra- and inter- embedded system as non-Cartesian geometrical fractal

Index

AAbstracto-empirical, 11, 15, 25–27, 75, 141,

198, 212, 225A posteriori, 36, 37, 90, 140A priori, 33, 36, 37, 90, 139, 140Asset valuation, 17, 85, 96, 99, 100, 104,

141, 146, 187, 204

BBai-bithman ajil, 205Bai-muajjal, 107, 108Bai-salam, 107, 108, 204Bank-savings, 177, 178, 182, 187, 198, 204,

217, 218

CCapabilities andFunctioning (CF), 115–120,

122, 125, 126, 128, 129, 134Capitalist globalization, 105Causality (inter-causality), 3, 7, 8, 10–12, 17,

19, 20, 22, 24, 26, 28–30, 39, 42–44,46, 75–77, 81, 87, 90, 95, 97, 106,109, 111, 130, 136, 139, 140, 143,147, 149, 156, 161, 163, 177, 179–181, 189, 190, 202, 204, 205, 208,209, 211, 225

Complementarity (complementarities), 2–4,6, 8, 9, 11, 13, 15, 16, 19, 20, 24,25, 29, 30, 31, 33, 35, 39, 41, 43–47, 77, 79, 82, 83, 85–87, 90, 96–98,101, 106, 110, 111, 122, 125, 126,128–130, 132, 134, 144, 146, 151,

154, 163, 166, 168–170, 172, 179–181, 185, 187, 190, 198, 203, 204,208–210, 225

Complex field (complex number), 140, 146,155

Complexity, 81, 103, 124, 136, 162, 171, 214Concrescence, 90, 140Consciousness, 7, 12, 17, 20, 21, 24, 27–31,

35, 40, 46, 97–100, 102, 120, 121,123, 129, 130, 141, 146, 159, 160,164, 165, 167, 170, 174, 180, 183,207, 209–213, 215

Consilience, 14, 82, 134Cooperation, 164, 165, 170Corporate Social Responsibility (CSR), 21,

96, 100–102, 106

DDebt, 15, 17, 41, 46, 130, 147, 177, 178,

201–211, 215, 216, 220Deductive, 139Deontological, 3, 21, 100, 123

EEconomic rationality, 2–4, 10, 20, 33, 36,

101, 106, 119, 123, 157, 159, 160,162

Economic stabilization, 162Endogenous (endogeneity), 4–8, 12, 13, 16,

17, 19–22, 26–29, 30, 31, 33, 35, 36,39–41, 43–47, 49, 50, 52, 77, 79,82, 83, 96, 99–101, 103, 104, 106,110, 111, 120, 122, 129, 136, 139,143, 148, 149–151, 153, 154, 156,

© The Editor(s) (if applicable) and The Author(s), under exclusive licenseto Springer Nature Singapore Pte Ltd. 2020M. A. Choudhury, Islamic Economics as Mesoscience,https://doi.org/10.1007/978-981-15-6054-5

227

228 Index

159, 161–167, 169, 173, 177, 178,180–183, 185, 187, 191, 196–198,207–210, 212, 214, 218, 219, 224,225

Entitlement, 162, 165Episteme, 3–5, 8, 9, 12, 16, 17, 101, 119, 121,

123, 126, 129, 130, 135, 147, 160,163, 170, 172–174, 183, 187, 189

Epistemology, 1–3, 11, 14, 81, 121, 126,129, 149–151, 154, 156, 160, 163,171, 172, 174, 220, 224

Equilibriumevolutionary, 16, 32–35, 49, 81, 104, 105,141, 143

learning, 3, 49, 81, 144steady-state, 4, 20, 29, 30, 48, 49, 105,141, 166, 167, 173

Ethico-economics, 1, 3, 4, 9, 10, 15, 16, 159,160, 162, 165, 167, 168, 172, 174

Ethics, 1–3, 8, 9, 17, 21, 27, 28, 31, 35, 36,41, 76, 82, 83, 96, 99, 102, 120–123,125, 129, 159–162

Evolutionaryconvergence, 48, 49, 81, 85, 141, 144,145, 181

learning, 1–5, 7–11, 13–17, 24, 30, 33–35, 40–44, 47, 48, 50, 52, 77, 81, 97,101, 103, 104, 106, 120–124, 126, 128,129, 136, 139, 141, 144–146, 148, 150,159–174, 178–181, 185, 187, 198, 202,205, 209, 210, 212–214, 216, 225

Exogenous (exogeneity), 11, 12, 21, 24, 27–34, 52, 77, 82, 83, 99, 103, 121, 147,159–162, 165, 173, 209

FFatawa, 10, 130, 187, 220Financial efficiency, 98, 105Fiqh, 75, 78, 90, 110, 111, 130, 147, 187,

206, 224Fiscal policies, 12, 30, 31, 34, 36Fractional reserve requirement, 183

GGold standard, 184, 211Good Corporate Governance (GCG), 21, 96,

100–102, 106Granger causality, 189, 190

HHereafter, 104, 121–123, 189

Heteronomy, 126, 140Historiography (historiographies), 15, 141,

144–146

IIjara, 84, 107, 185, 186, 204Inductive, 140, 156Innah, 185Input-output, 151, 152, 161Institutionalism, 117, 160, 165Integrative (integration), 1, 3–8, 10, 14, 16,

17, 35–37, 40, 42, 43, 47–50, 81, 96,97, 100, 101, 103, 105–107, 111, 116,127, 135, 140, 141, 149, 152, 154,156, 159–161, 174, 178, 182, 187,205, 207–210, 212–216, 225

Interactive (interaction), 1, 3–8, 10, 13, 14,16, 17, 35, 36, 40, 42, 43, 47–50, 78,97, 99–101, 103, 105, 106, 111, 115,120, 121, 127, 128, 135, 141, 146,149, 151–154, 156, 159–164, 171,178, 187, 205, 208–210, 212–214,216, 225

Islamic Development Bank (IDB), 75, 76,81–85, 87–91, 95–97, 104, 105, 107,111, 112, 147

Islamic monetary system, 104, 105Islamic Research and Training Institute

(IRTI), 75, 76, 78, 81, 83–85, 87, 90,96, 105, 111

Istisna’a, 83–85, 88, 89, 91, 107, 185, 204

KKnowledge, 1–11, 13–17, 19–31, 33–37,

39–51, 64, 75–87, 90, 95, 97–101,103, 106, 109–111, 115, 116, 118,119, 121, 122–132, 134–136, 140,141, 143–150, 154, 156, 157, 159–174, 178–181, 183, 186–189, 197,198, 201–213, 214, 216, 220, 223,224, 226

LLife-fulfillment, 10, 12, 13, 21, 90, 102, 103,

122, 128, 130, 182, 208

MMacroeconomics, 6–8, 10–12, 17, 21, 22,

29, 32, 34–36, 39, 77–79, 81–83, 95–97, 99, 101–105, 109–111, 115, 116,

Index 229

123, 126, 131, 132, 134, 135, 139,148, 180, 182, 188, 208, 209

Madhab (sectarian), 11, 109, 147, 206, 220,223

Maqasid as-shari’ah, 90, 130, 148, 149, 168,169

Marginal rate of substitution, 4, 29, 31, 42,43, 52, 85, 106, 125, 152, 180, 187

Matrices, 96, 127, 128, 151, 152, 154, 155Microeconomics, 5, 7, 8, 10, 17, 34–36, 39,

77–79, 81, 85, 96, 103–106, 112, 115,116, 123, 131, 132, 135, 139, 148,188, 208, 212

Microenterprise, 87, 106, 132Microfinance, 103Micro-money, 10–16, 177, 183–186Monetary policies, 11, 16, 34–36, 52, 110,

179, 182, 185, 201, 211Money and real economy, 7, 10, 15, 16, 177,

180, 201, 205, 209, 211, 220Money-commodity-money (MCM), 181Monotheism (monotheistic), 6, 8–11, 13, 14,

19, 39–41, 75, 80, 81, 103, 104, 110,111, 115, 116, 120–122, 125, 128–130, 134, 135, 140, 147, 156, 163,173, 174, 186, 187, 223, 173

Mudarabah, 84, 85, 87, 107, 132, 188, 197,204

Murabaha, 83–85, 87–89, 91, 107, 185, 197,204, 205

Musharakah, 84, 85, 87, 107, 132, 204

NNeoliberalism, 117Non-linearity, 33, 49, 81, 106, 137Non-physicalism (non-physicalist), 115,

120, 123

OOccidentalism, 117, 175Ontology (ontological), 2, 3, 6, 8–11, 13–15,

19–22, 24–30, 33, 35, 36, 39–41, 45,46, 49, 75–81, 86, 87, 90, 99, 105,109–111, 115, 116, 120–122, 125–130, 134–136, 140, 141, 147, 149,155–157, 163, 177, 179–182, 188,201, 206–208, 210, 213, 216, 220,223, 224

Opportunity cost, 4, 173, 187Optimization, 20, 29, 30, 166, 167, 173, 224Organizational behaviour, 159, 160, 167,

170–174

PPartial elasticity coefficients, 45, 151–154Participatory financing instruments, 17, 84,

85, 168, 208Phenomenology (phenomenological), 15,

19, 27, 28, 36, 39, 99, 100, 105, 115,116, 121, 125, 126, 129, 139, 140,155, 156, 163, 171, 172, 187, 207,224

Physicalism (physicalist), 120, 123Political economy, 82, 118, 119Poverty alleviation, 76, 82, 102, 103, 105,

106, 108, 109, 116, 144, 213Preferences

dynamic, 2, 3, 5, 35, 119, 135, 139, 171ethicized, 35irrelevant, 29, 119

Product-diversification, 96, 206

QQuantity theory of money, 6, 10, 183, 213,

214Quard e-hasana, 107Qur’an, 6, 11, 14, 40–42, 45, 52, 75, 76, 80,

85, 100, 104, 109, 121, 129, 135, 140,144, 147, 156, 189, 206, 208, 211,213, 220

RRational choice, 29, 123, 162Rationalism, 25, 28, 36, 119, 123, 126, 128,

157, 160–163, 172, 174Riba (interest), 15, 17, 40–42, 52, 102, 180,

185, 201, 204Risk-diversification, 86, 96

SShareholding, 85, 87, 95, 103, 105, 186Shari’ah, 10, 11, 41–43, 45, 46, 52, 75, 76,

78–83, 85, 87, 90, 95, 96, 99, 101,103–106, 109–111, 117, 130, 135,147–149, 157, 168, 169, 185, 186,188, 196, 197, 201, 206, 207, 220,223, 224

Simulationsimulacra, 25, 124, 128

Socialchoice, 29, 115, 116, 118–120, 123, 126,162, 164, 169

contract, 21, 115, 120

230 Index

economy, 215, 216Socio-scientific, 10, 25, 27, 28, 40, 45–47,

75, 95, 97, 116, 118, 120, 122, 125,126, 127, 134, 140, 141, 147, 149,157, 207

Spatial domain analysis, 35, 144, 149, 151,154

Stakeholding, 90, 177Sunnah, 6, 40, 76, 109, 121, 130, 189, 220SustainableDevelopment Goals (SDGs), 82,

83, 85, 87, 90, 96, 97, 99–102, 106Sustainability, 3, 7, 10, 11, 20, 21, 26–29, 31,

35, 41, 47–50, 52, 82, 83, 86, 97, 103–106, 111, 112, 119, 122, 123, 126,127, 148, 161, 162, 164, 185, 186,189, 211, 223, 224

Symbiotic, 8, 19, 20, 24, 39, 40, 87, 140,148, 149, 163, 164, 167, 174, 186,209, 213, 223, 225

TTakaful, 85, 103, 185Tawhid (Tawhidi), 6, 11, 19, 39–41, 45,

46, 52, 75, 76, 78, 80–82, 87, 90,98, 99, 101, 105, 106, 110–112, 115,120, 121, 122, 125, 129, 130, 134,135, 140, 147–149, 156, 173, 174,201, 203, 206, 207, 213, 216, 220,223–225

Ta’wil, 45, 189Tensors, 127Topology (topological), 9, 14, 149, 150, 206,

214, 216Transaction cost, 161, 162Twarruq, 185–187, 205

UUnity of knowledge, 1–11, 13–17, 20–30,

33, 35–37, 39–47, 49–51, 75–81, 83–87, 90, 95, 97, 98, 100, 101, 103,106, 109–111, 115, 116, 118, 119,121, 122, 125–132, 134–136, 141–144, 146–150, 154, 156, 157, 160,161, 163–174, 178, 180, 183, 186–188, 190, 198, 201–211, 213, 216,220, 223, 226

Universality, 27, 87, 90, 98, 119, 121, 126,135, 148, 172, 174, 206

Usul (usul al-fiqh), 90Utilitarian, 90, 96, 101, 103, 105, 115, 116,

119–121, 123, 130

VVectors, 4, 5, 7, 10–14, 35, 40, 43, 44, 47, 49,

50, 78, 79, 86, 101, 103, 106, 108,109, 121, 124, 109, 121, 127, 143,144, 153, 168, 169, 171, 173, 187,189, 190, 202, 203, 207, 208, 209,213, 202

WWaqf, 87, 89, 91, 97, 103, 105Wellbeing (maslaha), 10, 21, 41, 109, 141,

148, 179, 189, 198, 224World-system, 3, 10, 11, 14, 20, 27–29, 33,

36, 40, 41, 46, 81, 90, 99, 100, 105,110, 116, 117, 120, 121, 122, 125,129, 134, 148, 150, 155, 156, 160–164, 173, 174, 206, 213, 216, 220,224, 225