European Rejection of Unobservables

O, wad some Power the giftie gie us. To see oursels as others see us! – Robert Burns. The essay below is my personal perspective, from an Islamic point of view, of certain aspects of the European intellectual traditions.

The abstract mathematics of modern economics contain messages directly opposite to teachings of Islam. Economics says that rational behavior maximizes lifetime pleasure from consumption. Islam teaches us the humans are free to choose between good and evil, and the goal of life is to learn to make good choices. Empirical examination of human behavior flatly contradicts Economic theories. Even though this is obvious, economics textbooks continue to teach these theories. Why do economists refuse to modify theories in face of overwhelming evidence to the contrary? To answer this question requires a deep dive into the intellectual history of Europe. A century of bloody warfare among Christian factions led to general disenchantment with religion. Instead, European intellectual were forced to construct a body of secular knowledge relying solely on observations and logic. In particular, they forcefully rejected unobservables (like God, Angels, Judgment Day) as being outside the scope of science. However, this limitation of knowledge to being about observables alone had extremely damaging consequences. Most real world mechanisms are unobservable. Science actually consists of good guesses at these hidden mechanisms. This post is the 4th in a sequence which described my life-experiences which led me to my current radical views. For posts # 1,2,3 use short link http://bit.ly/AZlife#

In graduate school, I had been trained to believe that history was irrelevant. However, Edward Said’s Orientalism taught me the opposite lesson. To understand economics, it was necessary to study the historical circumstances which led to the birth of Economics on fatally flawed foundations.   If Economics is fundamentally wrong, how and why did this happen? Bairoch’s book (Economics and World History: Myths and Paradoxes) led me to the insight that economic theories were developed to serve the interests of the powerful and wealthy countries. They were not bodies of objective and scientific knowledge, as they claim to be. Deeper study of history led me to the realization that world history was distorted to project the superiority of the West, and the inferiority of the East. Reading these histories creates an inferiority complex in our students, which deprives them of the confidence required for original and creative contributions^[1].  

Historical Context of Economic Theory

Since Islam has many teachings regarding economic affairs, one would expect that Islamic teachings would provide us with enlightenment regarding economics. However, when we look at modern Economic Theory, we find no common ground. Because modern economics is cloaked in mathematical language, there seems to be no overlap between Islam and Economics. But when we look through the mathematics to the message beneath the mathematics, we find contradictions and conflicts instead of harmony. This leads to a very uncomfortable conclusion: either modern economic theory is wrong, or Islamic teachings about economics are wrong^[2]. To give just one simple example, economics teaches that the goal of life for all rational human beings is to maximize the pleasure they receive from consumption of goods and services. Islam teaches us to pursue the success on the day of Judgement, instead of pleasures of this world. “You will not achieve goodness until you spend (for Allah) that which you love.” Instead of maximizing pleasure, we are supposed to give away, for the sake of Allah, things which we love the most – corresponding to minimizing utility, in terms of economic theory. 

The stark conflict between Islam and Economics faced me with a seemingly impossible choice: either I reject the teachings of Islam, or I reject the teachings of Economics. Many of my predecessors in the field of Islamic Economics had seen this problem, and had resolved it by adapting and modifying the teachings of Islam, to fit into the framework of modern Economics. The other option – rejecting modern Economics – involved rejecting a discipline being taught around the globe, which served as a guide to practical policy makers in nearly all countries. How could so many people be so dramatically wrong? It seemed to be intellectual arrogance to say that all of modern Economics is wrong. How could I set my personal beliefs against a nearly universal global consensus? For a while, I hesitated. I thought it was better to think that I had made some mistake, rather than saying that extremely intelligent people – Nobel Laureates in Economics, as well as practical policy makers around the world – are all following false theories, with extremely harmful consequences.  

I realized that if people can reject the dramatic signs of existence of God, then they can also make other fundamental errors. I started looking more carefully at the areas of conflict between Islam and Economics.  At the heart of economics is a theory of human behavior which says that all rational human beings seek to maximize the pleasure they get from consumption of goods and services over their lifetime. This is obviously in conflict with Islamic teachings. I started collecting evidence against this utility maximization theory, and soon, I had a mountain of evidence. In collaboration with Mehmet Karacuka, I compiled this solid and overwhelming evidence into a review article entitled “The Empirical Evidence Against Utility Maximization: A Survey of the Literature”^[3]. I sent this to my colleagues, teachers, and other professionals. Nobel Laureate Kenneth Arrow, who had also been my teacher at Stanford, wrote back to say that he appreciated my well-argued and thorough critique, and asked what new theory of behavior should take its place.

 One might expect that empirical evidence which contradicts central assumptions made by economists would receive some attention and response. However, top journals rejected my submission, often without comments. One of the referees wrote that this paper is “too insulting” to economists. Another wrote that a theme running throughout the paper is that “economists are blinkered idiots who are willfully ignoring the way in which people behave when they build their models, and therefore say all sorts of stupid things”. That is, no one had any counter-arguments, but to publish the paper would be too damaging to the prestige of the profession. As I learned later, I am just a small-fry – major economists who published findings contradicting central beliefs of economists have been shunned as heretics. Three major revolutionary ideas of Keynes were suppressed because they were in conflict with central beliefs of economists. Similarly, David Card, who showed that supply and demand theory does not determine wages, writes that he lost a lot of friends. Economists became angry and thought that he was being a traitor to the cause of economics^[4].

There are many economists who have come to the understanding that modern economics is built on absurd assumptions about consumers, firms, and markets. However, strong forces ensure that those within the profession keep quiet about this matter, at the risk of losing their status, prestige, employment opportunities, and jobs. Nobel Laureate Paul Romer writes that 30 years ago, Lucas and Sargent started a revolution in Macroeconomics with the claim that Keynesian macroeconomics was based on fundamentally flawed doctrines and led to wildly incorrect predictions. Now, 30 years later, we are at the same position. Lucas & Sargent style modern macro models are based on fundamentally flawed doctrines, and lead to wildly incorrect predictions. He goes on to say that many macroeconomists are privately aware of this, but cannot publicly say this because of the professional pressure to conform^[5].  Romer goes on to make suggestions about how to fix the “Trouble with Macro”, but we want to go to a deeper level in our analysis of this issue. Why are economists going around in circles, without making any progress towards greater knowledge? Why do obviously false theories about the labor market which were rejected by Keynes, and are also rejected by empirical evidence today, continue to be taught in modern textbooks?^[6]

 Once it became crystal clear to me that modern economics was built on absurd assumptions about the behavior of consumers, firms, and markets, a different and more difficult question emerged. How can intelligent people come to believe in completely ridiculous theories about the world we live in? To learn the answer, I started investigating the methodology of economics: how do people decide on which theories are acceptable? A famous essay on methodology by Milton Friedman states that: “Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions.” Evidently, this furnishes economists with a license to make crazy assumptions of the type I had studied at Stanford. But it was a real puzzle as to how sane, rational, and intelligent people could propose such absurd theories about the world we live in.

Once we examine them carefully, it becomes obvious that these theories are very helpful to those who are wealthy and powerful. One possible explanation for the persistence of false theories is that cynics knowingly teach falsehoods to protect their wealth and power. Having gone through the process of being indoctrinated, I knew that this was not the right explanation. I, and my teachers, taught economic theories sincerely, in the belief that they were true. So I was faced with the question of how an entire intellectual tradition can become corrupted, accepting falsehoods as unquestionable axiomatic truths. It took me a long time to learn the answer to this question. But the central clue was furnished by “Orientalism”: knowledge is generated by power struggles. To understand economic theory, we must understand the historical context in which they originated. My study of history revealed that economic theories had been used as weapons in power struggles between European nations, and also in the European colonization of the globe. This broader historical context in which economic theories emerged is discussed in the next section.

History of Western Intellectual Developments

Because the histories are written by victors, they are distorted to glorify Europeans. Looking past these biases, a very brief sketch of a non-Eurocentric history can be outlined as follows:

1. Western barbarians conquer advanced (but degenerating) civilization of Al-Andalus. Translations of millions of books end the dark ages of Europe. The light of Islam, reflected in libraries of Islamic Span, reaches Europe.
2. Two centuries of struggle between “science” and religion: influx of new knowledge contrary to traditional Catholic doctrines leads to breakup of the Church.
3. More than a century of bloody warfare between Christian factions leads to general disenchantment with religion.
4. Loss of faith in Christianity, leads to an URGENT necessity to create a body of SECULAR political knowledge. For details, see “The Origins of Western Social Sciences” http://bit.ly/IR3owss

The question I was trying to answer was: “Why do economists build their discipline on absurd assumptions about human behavior?” In search of answers, I was led to expand the scope of the question to “Why are the social sciences built on an absurd methodology?”. It is almost obvious that the methodology of science, useful for exploring inanimate objects which satisfy laws of motion, is not suitable for human beings, who are free to choose, act, and change. Nonetheless, “science” refers to an approach which looks for universal laws of behavior, valid across time and space, history and culture. These are obviously impossible to find. How can human beings come to believe ideas which are obviously wrong, and directly in conflict with our experienced reality? The first answer that emerged from my study of history was that loss of faith in Christianity led to a collective trauma, which distorted the thought patterns of European intellectuals. The brief outline of European history given above gives a sketch of the events which led to loss of faith in Christianity in Europe^[7]. The consequences of this loss of faith are examined in the next section.

Trauma of Loss of Faith

European intellectuals came to believe that universally accepted Christianity had turned out to be false! One consequence could have been to examine other religions, but the assumption of Europeans superiority led to an automatic assumption that all other religions were inferior. The other alternative, to uncover the deceptions of the Church and recover the true message of Jesus AS was blocked by the Church; even the famous physicist Newton had to hide his efforts along these lines^[8]. As a result, European intellectuals rejected Christianity, and decided to build a new theory of knowledge which would be safe from errors, and arrive at certain results, not subject to doubt. This led to the Logical Positivist theory of knowledge: Knowledge must be built on what we can see and touch, supplemented by use of reason. One of early Enlightenment philosophers David Hume wrote that we should BURN all books not containing experiments and quantitative reasoning. Emphasis on certainty led to the rejection of Intuition, and of the heart as a source of knowledge. This has had grave consequences.

We illustrate these ideas using one example. Descartes, father of modern Western philosophy famously said: I think therefore I am. The trauma of loss of faith led one to question all certainties, so Descartes starts with the most basic: do I exist? However, anyone placed in this position of extreme doubt would consult his senses – the beating heart, the blood rushing in my veins, the tingling sensations of my skin, and sights, sounds, and smells which surround me – all testify to my existence. Explicitly rejecting all of this intuitive evidence – “I feel, therefore I am” – Descartes appeals to reason, to establish his own existence. This appeal is obviously fallacious – when the word “I” is used in the premise, the existence of the subject is already presupposed. But what we want to emphasize here is the rejection of life experience, feelings, and the heart as a source of knowledge. About this, the Quran says that:

Quran 22:46: So have they not traveled through the earth and have hearts by which to reason and ears by which to hear? For indeed, it is not eyes that are blinded, but blinded are the hearts which are within the breasts.

Rejection of Unobservables

I came to realize much later the central point which differentiates Islamic teachings from Western philosophy. The Western philosophers rejected the unseen as a basis for knowledge, because of the trauma of loss of faith. The philosophy of Logical Positivism (LP) is founded on rejection of belief in the unseen as superstition. This rejection of intuition and feelings, and of the heart as a source of knowledge, corresponds to a deliberate self-infliction of blindness to central sources of human cognition. This is in stark contrast with the opening verses of the Quran “This book …(contains sure) guidance for the God-conscious, those who believe in the unseen”.

This rejection of the unseen is at the heart of foundational flaws in modern economics. This happened in two steps. The first step was a failure to understand the nature of science. Here one has to carefully differentiate between “science” and “philosophy of science”. Just like grammarians and linguistics study speakers of language to derive the rules governing language, so philosophers study science to learn the rules used by scientists to advance science. Scientists do science intuitively and correctly, and made progress in leaps and bounds. However, philosophers of science, constrained by blinders which prevented them from recognizing the central role of unobservables, came up with disastrously wrong theories about how science works.

Rejection of religion in Europe led to the necessity of rebuilding society on secular foundations, which would command consensus across religious schisms within Christianity. It was the hope of Western philosophers that confining basis of knowledge to the publicly observable and demonstrable would lead to certainty, objective knowledge, and result in consensus. However, although this is still not widely acknowledged or accepted within the Western intellectual tradition, it is impossible to construct any discipline of knowledge purely on basis of observations. In particular, this philosophy makes it impossible to understand the physical sciences.

The essence of the scientific method, created by Ibnul Haytham in the 11^th Century, consists of the use of appearances to deduce structures of hidden reality. Ibnul Haytham used the observable properties of vision to deduce that there are light rays which travel in straight lines. Similarly, Newton used falling apples and motion of planets to discover the hidden force of gravity. This type of logic, reasoning from appearance to a hidden explanation is called ABDUCTION. European intellectuals do not accept this as a valid form reasoning because it involves guesswork which can never be verified with 100% certainty. The real reason for not allowing abduction is that it allows us to use of amazing order of the universe to argue for existence of a creator. This is exactly what Newton believed, as confirmed by his unpublished writings. Schizophrenically, he was revered as giant in physics, but his metaphysics was rejected.  Following the trauma of loss of faith, European intellectuals did not want to allow for any type of logic which would point to God.

Philosophers of science wanted to believe that science is the only source of valid knowledge, and that religion is purely superstition and ignorance. The philosophy of logical positivism which emerged in the early 20^th Century claimed to prove this. It argued that science gave us certain knowledge because it was based purely on observables. Religion relies fundamentally on unobservables like God, Heavens, Angels, etc. and hence is outside the realm of valid knowledge. This philosophy became wildly popular in the early 20^th Century. Abandoning traditional approaches, modern social sciences were built on this misunderstanding of science, created by logical positivism.  This is why economics firmly rejects the role of unobservables in economics. This has led to serious deficiencies in modern economics in terms of understanding human motivations and behavior, and also in understanding the sources of human welfare.  Even the collapse of logical positivism in the 1960’s did not lead economists to reconsider the positivist foundations of their discipline. A recent survey showed that they continue to believe in the central propositions of logical positivism.

These failings of economics have had major unrecognized consequences, the looming climate catastrophe being a major example. Some of these issues will be discussed later.

---

[1] See “The Deadliest Weapon: Fabricated History” bit.ly/AZDeadly 

[2] For more detailed discussions of the conflict between Islam and Economics, see “An Islamic Critique of Neoclassical Economics” ssrn.com/abstract=3107412 and “Islam vs Economics” ssrn.com/abstract=2301456

[3] See “Behavioral vs Neoclassical Economics” bit.do/azultima

[4] For details, see bit.ly/CIIEL03

[5] See Romer’s Trouble with Macro: bit.ly/ACRomer

[6] See “Understanding Macro: The Great Depression (1/3)” bit.ly/AZumgd1

[7] For more details, see “European Transition to Secular Modernity: Lessons for Muslims” bit.do/etst1a

[8] See Wikipedia article on “Religious Views of Newton” – he rejected Trinity, and believed in one God.