The Emergence of Neoclassical and the Rise of Heterodox Economics

This chapter outlines the variations of neoclassical economics in order to set forth an engagement with contemporary debates on economic thought and the locale of Islamic economic postulates that have been forgotten, underresearched, or cast as unscientific. The fundamental idea of reinvigorating classical scholars such as al-Ghazālī connotes that economic doctrine cannot be studied on its own terms and has to be reshaped in relation to other human fields, including ethical principles. Such a standpoint also asserts that ethics as virtuous traits of character have to be brought back to the table in contemporary economic discourse.

Despite the significant variations of and within neoclassical economics, it is widely accepted as part of the so-called mainstream or orthodox economic theories taught at universities across the world. Following rational choice theory and supply and demand, neoclassical economics favors an individual's rationality and one's ability to maximize utility or profit, while also resorting to mathematical equations and evolutionary methods in the study of the economy. Neoclassical economics was developed in the late nineteenth century, based on the theories of William Stanley Jevons (d. 1882), Léon Walras (d. 1910), Carl Menger (d. 1921), and Alfrid Marshall (d. 1924), and became popularized in the early twentieth century. It is widely believed that Thorstein Veblen (d. 1929) first used the term neoclassical economics as it sprang out of demand and supply theory or the so-called Marginal Revolution.6 Despite diverse theories and approaches within neoclassical economics, its philosophy primarily focuses on consumers’ maximization of personal satisfaction, which also employs mathematical deductivism. This theory coincides with the objectives of rational behavior theory that man's economic decisions are rationally induced. While classical economists maintain that a value of a commodity is the result of the cost of material and the cost of labor, neoclassical economists hold there is also a perceived value of a commodity by a consumer that has a direct effect on price and demand. Furthermore, generally neoclassical economists advance competition in the market, oppose governmental involvement, and uphold that savings determine investment and its economic equilibrium.