On September 24^th, 2024, at a seminar arranged by Ankara Yıldırım Beyazıt University (AYBU) and Institute for International Relations and Strategic Research (ULISA | IIRSR) & Econometric Research Association, I discussed research opportunities for students created by addressing two major methodological flaws in modern economics. These flaws are rooted in historical shifts in economic thought. They have constrained the discipline’s ability to address real-world challenges. The original talk, and a summary, can be accessed from: “Breaking the Boundaries in Economics: Rediscovering the Roots of Human Welfare“. In this post, I discuss the two flaws, framed as two puzzles, more deeply. 

Puzzle 1: Is Western Social Science Universally Applicable to All Societies?

Social theories, much like policies, are deeply shaped by the specific societies they aim to describe. A theory that thrives in one context often fails disastrously in another. For instance, while State-Owned Enterprises (SOEs) have driven decades of phenomenal growth in China, they have been a significant economic burden in Pakistan. For a detailed discussion, see Privatization of SOEs: Islamic Views. This context-dependent nature of social theories makes the bold claim of Western Social Science to universal applicability not only questionable but also fundamentally flawed.

Western social sciences emerged in response to Europe’s unique historical experiences. Centuries of religious warfare between Catholics and Protestants created a need to build secular theories that would be equally acceptable to all Christian factions. As Peter Manicas observes in A History and Philosophy of the Social Sciences, the social sciences emerged in the early 20th century based on a misguided attempt to emulate the physical sciences. A previous post on The Grand Deception: Social Science discusses eight authors who call for rebuilding the social sciences on new foundations. Historical context explains both the emergence of modern social science, and its wrong foundations. A detailed discussion of this historical context is given in Chapter 2 (Draft) of my forthcoming textbook. Briefly, World War I dramatically lowered the prestige of traditional historical and qualitative approaches to studying human society, replacing them with a mathematical, quantitative, and empirical methodology designed to mimic the successes of physical sciences. While this approach appears precise and scientific, it remains profoundly unsuitable for the study of human societies. This methodological misalignment not only undermines the validity of social sciences but also raises two critical puzzles:

1. Why do European intellectuals claim universal applicability for social science?

Centuries of warfare led to advancements in weaponry and the erosion of moral constraints, fueling European colonization of the globe. European societies, having abandoned religion as a moral compass, adopted a view of humanity as governed by survival of the fittest. This perspective justified the conquest and exploitation of other civilizations, which were often technologically advanced but politically fragmented or declining. For more details see Central Myths of Eurocentric History. As Edward Said argues in Orientalism, this era of colonization fostered a sense of superiority in the West, leading to the assumption that European civilization—and its social sciences—represented the pinnacle of human progress.

This assumption is demonstrably false. Claims of civilizational superiority were often used to justify atrocities, such as colonial violence and genocide. More recently, similar rhetoric has been deployed to justify the destruction of Iraq or ongoing support for Israeli genocide of Palestinians. These actions, premised on the supposed moral and intellectual superiority of Western frameworks, reveal the destructive consequences of flawed Western social theories.

2. Why do non-European societies accept the applicability of Western Social Sciences?

The global dominance of Western powers and their intellectual hegemony, reinforced by colonialism, have deeply influenced non-European societies. Indigenous knowledge systems were systematically devalued, while Western frameworks were presented as universal. Even today, the awe-inspiring achievements of Western physical sciences often lead to an uncritical acceptance of their social sciences, despite stark differences in methodology and outcomes.

The contrast between physical and social sciences is telling. Physical sciences have revolutionized human life through universally applicable technologies, transforming every aspect of our existence. In stark contrast, social sciences have often contributed to conflict, environmental degradation, and widespread social alienation. The increasing rates of loneliness, despair, and suicide in modern societies underscore their failure to enhance human welfare. Many authors have recognized the flawed foundations of modern social sciences, and called for rebuilding them afresh, on new foundations. For references, see The Puzzle of Western Social Science.

Puzzle 2: Does Money Buy Happiness?

Modern economics assumes that humans act as rational agents seeking to maximize happiness through material consumption. This perspective equates increased wealth with greater happiness. However, this view is fundamentally flawed, as it overlooks the fleeting nature of pleasure from material goods and neglects the deeper, more enduring sources of human well-being (The Secrets of Happiness).

The Easterlin Paradox reveals that beyond a certain threshold, additional income and consumption do not lead to sustained increases in happiness. Despite significant increases in wealth over time, average happiness levels have remained relatively stagnant. Instead, the relentless pursuit of material wealth often traps individuals in a cycle of desire and short-lived satisfaction, without contributing to long-term well-being.

In contrast, lasting happiness arises from character development and strong social relationships. Cultivating virtues such as gratitude, contentment, and compassion not only enhances personal well-being but also fosters positive interactions with others. Social connections provide emotional support, a sense of belonging, and opportunities for meaningful engagement—key ingredients for long-term happiness. See Can Money Buy Happiness?

Research consistently shows that individuals with robust social ties enjoy better mental and physical health, including lower rates of anxiety and depression, stronger immune systems, and longer lifespans. These findings underscore the value of investing time and effort into relationships rather than fixating on material accumulation. A study by Holt-Lunstad et al. (2010) found that strong social relationships improve survival rates by 50%, highlighting the profound impact of social connections on longevity. Furthermore, social ties contribute to reduced physiological stress responses and improved mental health outcomes (Umberson & Montez, 2010).

Moreover, a culture centered on consumption can lead to broader societal harms, such as environmental degradation and growing inequality. Shifting our focus from materialism to personal growth and community building allows us to create a more sustainable and equitable world while enhancing individual well-being. De-Growth Economics builds on this recognition, advocating for simpler lifestyles that not only promote greater happiness but also represent our best hope of averting the looming climate catastrophe. See: Gasparro (2024) Book Review: The Future Is Degrowth. A Guide to a World Beyond Capitalism.

A Path Forward

The core of economics is, or ought to be, understanding how material resources can be used to improve human lives. However, modern economics has strayed far from this purpose. Blind to the roots of welfare and indifferent to cultural and historical differences that shape conceptions of identity, goals, and happiness, it reduces humanity to identical robots programmed to maximize consumption. This reductive and dehumanizing framework is incapable of addressing the complexities of human welfare and can lead only to disaster.

These foundational flaws leave us with no choice but to rebuild the discipline entirely. Economics must be reconstructed on principles that recognize the diversity of human experiences and the centrality of moral and cultural values. This reimagined framework should prioritize improving human welfare over abstract mathematical models and mechanistic assumptions.

The upcoming textbook, “Third Generation Islamic Economics,” seeks to address these challenges by offering a vision for economics grounded in Islamic epistemological and moral foundations. It invites readers to rethink the discipline in a way that aligns with the realities of human life and the ethical imperative to build just and sustainable societies.

If you’re intrigued by these ideas, I encourage you to join my mailing list here: http://bit.ly/AZIEML . Subscribers receive motivational insights, links to draft chapters, and updates on the progress of this transformative project. This post will be featured in the next email, offering an opportunity to further explore these critical issues.

Let’s rethink economics together.

References:

Holt-Lunstad, J., Smith, T. B., & Layton, J. B. (2010). Social relationships and mortality risk: A meta-analytic review. PLOS Medicine, 7(7), e1000316. DOI: 10.1371/journal.pmed.1000316

Umberson, D., & Montez, J. K. (2010). Social relationships and health: A flashpoint for health policy. Journal of Health and Social Behavior, 51(Suppl), S54–S66. DOI: 10.1177/0022146510383501

Quote from Marshall regarding Universal Applicability of Economic Theories: Marshall made this clear at his inaugural lecture at Cambridge:

“Man himself is in a great measure a creature of circumstances and changes with them. The chief fault in English economists at the beginning of the century was not that they ignored history and statistics, but that they regarded man as so to speak a constant quantity, and gave themselves little trouble to study his variations. They therefore attributed to the forces of supply and demand a much more mechanical and regular action than they actually have. Their most vital fault was that they did not see how liable to change are the habits and institutions of industry…. While attributing high and transcendent universality to the central scheme of economic reasoning, I do not assign any universality to economic dogmas.”