Profit-Sharing Versus Interest Rate in Islamic Economics as Mesoscience

Islamic economics is a field of mesoscience. What is mesoscience and meso-economics within it? The following excerpts will explain the underlying meaning: “Mesoscience implies there are some underlying principles that can unify different disciplines, and all disciplines may be involved in contributing available disciplinarily specific knowledge at corresponding levels to revealing common principles for meso-scales at all levels. A small change in the angle to view old problems could lead to a big progress in solving them.” [Springer Nature, Engineering (2019). “What is meso-science or mesoscience?” Switzerland.] “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 characteristic structure exists, namely meso-structure, featuring dynamic heterogeneity in space and time, which is critical to the performance of the system. Parameters at the mesoscale are needed to bridge the mechanism at the element scale to the behavior of the system. The objective of mesoscience is to develop a principle as general as possible to make such a bridge for different levels of disciplines…..” [Huang, W. Li, J. & Edwards, P. (2018). “Mesoscience: exploring the common principle at mesoscales”, Natural Science Review, 5:3, pp. 321–326.] Islamic economics as a scientific field of inquiry embodies in it the moral and material endogenous embedding in the light of the primal ontological law of monotheism conveying unity of knowledge. The mesoscience of this methodological worldview is explained by pervasive complementarities, participation, and symbiotic interrelations between the variables representing the good things of life in the wellbeing criterion cogently explained. The following definition is thereby adopted: “Islamic Economics is neither a microeconomic nor a macroeconomic study framed in these mainstream dichotomies. The moral and ethical foundation of Islamic economics emerges from the possibility of symbiotic inter-causality at the mesoscales of methodology, behaviour, applications, and continuity. Integrated together by methodological abstraction and applications, the resulting mesoscale phenomenological study presents a distinctive methodological worldview of organic unity of knowledge. In the qur’anic terminology this monotheistic worldview is referred to as Tawhid, the universal Law of unity of knowledge in ‘everything’.” [Choudhury, M.A. (2012). “The ‘Tawhidi’ Precept in Science”, in Muzaffar Iqbal (ed.)Studies in the Islam and Science Nexus Volume I, Ashgate, London, Eng.] In regard to its mesoscientific nature, Islamic economics is formally rendered in regards to the endogenous interrelationship between moral values and the legal injunctions that are derived from the Qur’an and the guidance of the Prophet Muhammad (sunnah). These two essences of formalism premise mesoscientific reasoning in the foundational ontological origins of its methodology. The emergent methodology is of the law of oneness explained by symbiotic unity of knowledge of monotheistic oneness. This primal ontology of Islamic economics makes this field a study in participatory endogenous relations in evolutionary learning dynamics of the inter-variable, transdisciplinary, and moral-material interaction and integration as processes of evolutionary learning by inter-causal relations between the variables of the wellbeing criterion. This process, analytical in nature, leads to formulating how the primal monotheistic methodology establishes the emergent analytical method of evaluation (estimation and simulation) of the wellbeing function. This is the formal criterion that explains the endogenous, that is pervasively complementary and participatory inter-causal relations between the multivariate vector of the wellbeing criterion. Islamic economics in this meso-economic category is a vastly interactive field of socio-scientific inquiry. This approach essentially involves moral values and their explained, analytical, conceptual, and quantitative organic embedding of material values by the full study of the wellbeing function. One of the arguments and the theory propounded in Islamic economics is to formalize the principle of avoidance of 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 provided as the inviolable replacement. The emergent symbiotic relationship between trade and the real economy in the midst of phasing out the rate of interest is shown to be actualized by the force of consciousness of belief causing reasoning by knowledge to induce the process of phasing out interest rate by the profit-sharing rate in an ethicizing market venue. The formal model underlying the phasing out of interest rate and its replacement by the rate of profit as the manifestation of deepening trade is an extensively mesoscientific undertaking. It concerns the ontological conceptualization as methodology leading into the evaluative method of a formalized wellbeing function. This formalism arises from the ontological premise of the fully endogenous participative nature of inter-variable feedback. The vector of selected variables results in multivariate inter-causal relations. Such interrelations take the form of recursive feedback in the light of their endogenous relations linked with the evaluation of the wellbeing function. The wellbeing criterion is ontologically derived from the formalism and dynamics derived from the ontological foundation of the organic unity of knowledge of the monotheistic law (Tawhid). This paper will firstly delineate the methodological theory that emanates from the ontological premise of monotheistic law of unity of knowledge (Tawhid) in the Qur’an and is epistemologically mapped by the prophetic guidance (sunnah) into the world-system. Next, the emergent methodology will be shown to lead to the formulation of the wellbeing criterion, which is evaluated by inter-variable circular causation relations expressed as equations. The emergent model of evaluation of wellbeing criterion with its inter-variable circular causation relations forms the resulting formal meso-economic perspective. The empirical problem of inverse relationship between profit-sharing rate and interest rate (riba) is thereby studied by Islamic financial data from Islamic banks in Malaysia. Pertinent conclusion is then made on the evidence of moral-material endogeneity of the problem of phasing out interest rate by profit-sharing rate by trade in the good things of life for attaining evolutionary learning evaluation of wellbeing substantively defined as a multi-systemic, multivariate evolutionary learning dynamic model premised on monotheistic organism of unity of knowledge.