Introduction: Islamic Approach to Micro

In Fall 2017, I taught the standard Ph.D. first semester course on Micro-Economics using an Islamic Approach. The first lecture, summarized below, explains why an Islamic approach makes a huge difference to the study of Micro. The whole set of 30 lectures for the entire course, together with slides, references, notes, and supporting materials (link: Advanced Microeconomics)    is freely available for ANY teacher who would like use and adopt this approach for their own courses in Microeconomics. I would be happy to provide any necessary support to teachers would like to try this novel experiment. I can promise that the students will very much enjoy this approach, because it speaks directly to the heart, and can easily be understood — in contrast to conventional micro, which just involves memorizing math, and learning things about human behavior which are patently false. [shortlink: bit.do/aziam]

90min English Video-Lecture on YouTube. 2500 Word English Summary is given below:

1      Deeds are valued by their intentions

Why are we sitting in this classroom; what will we gain from paying attention to this lecture? The value of all actions depends on the intention with which they are done. Students CAN make intentions which will make their study extremely valuable, for themselves and for the Ummah. I will start by discussing my intentions. What are my intentions in teaching this course as a teacher?

There are THREE main new ideas that I want to introduce students to in this lecture:

  1. There are two types of knowledge: Useful Knowledge is extremely precious, while Useless knowledge is extremely harmful.
  2. Learning Useful Knowledge creates internal personal transformation, which also leads to external transformation (changing the world). This type of learning requires us to take risks, and requires courage, confidence and trust.
  3. Higher Level Learning requires meta-Knowledge – that is knowledge about knowledge. What is the nature of economic theories? Who invented these theories? What purpose do they serve? This is an external point of view. We study economic theories as objects of study. The internal point of view takes economic theories as truths, and requires us to learn and believe them.

 

2      Distinction between Useful & Useless Knowledge

The Prophet S.A.W. made dua for increase in his (useful) knowledge, and also made dua to seek protection from harmful knowledge. He also described how to tell the difference:

It is narrated by Jabir R.A. that the Prophet S.A.W. stated that Knowledge is of two kinds. One which enters the hearts, and that is the useful knowledge. The other is only on the tongue (without action or sincerety) and that is argument of Allah against the son of Adam A.S.  Hadeeth 6 in Muntakhib Ahadeeth Ilmo-Zikr.

2.1     Western Knowledge is (often) Harmful

Surprising Fact for Students: Western education today is focused on, and built around HARMFUL knowledge. How can you tell?  Think about knowledge that you have acquired in your western education:

  • Has it entered your heart?
  • Has it made your heart soft? – does it create compassion and sympathy for suffering?
  • Is it useful for the conduct of your lives?
  • Does it help you to understand the world around you?
  • Can you solve problems that you face, or help others solve problems that they face?
  • Can you diagnose economic problems and suggest solutions?

Students might think that economics DOES help them, at least in terms of the last three questions posed above. We will show later in this course that this is an illusion. Economic theory is designed to deceive students into believing false theories which have the goal of protecting the interests of the rich (capitalists).

2.2     Useful Knowledge Enters the Heart

UNLIKE ALL WESTERN knowledge that Students have learned in economics:

There is such a thing as useful knowledge. It passes from heart to heart.

The Powerful Message delivered in the Quran changed the course of history. The nature of the message is described in the Quran:

2:151 Even as We have sent unto you an apostle from among yourselves to convey unto you Our messages, and to cause you to grow in purity, and to impart unto you revelation and wisdom, and to teach you that which you knew not

Messages to the heart cannot be conveyed by words, and that is why both the Message and the Messenger are required to deliver it. History testifies to the power of this message, which transformed the people living in Arabia from ignorant Bedouin to leaders of the world, and created a civilization which dominated the world for a thousand years. From this example, we see that USEFUL Knowledge Transforms the World, in a two-stage process. First it changes people, then the transformed people change the world.

2.3     Is Western Knowledge Useful?

It is easy to see that none of the Western education (that students have acquired with so much difficulty and struggle) has these properties:

  • Do you know how to change your inner world?
  • What will bring peace and contentment to your heart?
  • What will lead to anxiety and unrest?

Turning to Economic Theory as part of the Knowledge of the West. It has led to a massive increase in GNP per capits. BUT: has this massive increase in GNP per capita caused a rise in Welfare in the West? Serious and detailed research proves Easterlin’s Paradox – despite increase in wealth, “happiness” or “sense of well-being” has not increased in the West. There is no LONG RUN correlation between happiness and wealth; there is a SHORT RUN strong correlation between the two. This creates the Easterlin Paradox – because of CORRECTLY perceived short run benefits, people pursue wealth, but this bring them nothing in the long run. As the Quran says, pursuit of the material benefits of this world is the pursuit of an illusion (mata’ul ghuroor).  See my article: Evaluating the Costs of Growth for a detailed explanation of how economic growth has failed to provide the benefits that it is supposed to.

Did Modern Knowledge of Social Science in the West prevent the deadly world wars, environmental collapse, extinction of thousands of species, pollution of the oceans and atmosphere, the Global Financial Crise, 100’s of major economic and financial crises, Billions of Hungry People, Massive Inequality, Wars, Injustice, Oppression, Exploitation, AbuGhraib? This knowledge does not meet the defining characteristics of useful knowledge.

For direct evidence that Economic Theory is HARMFUL Knowledge, see Julie Nelson: Poisoning the Well: How Economic Theory Damages the Moral Imagination – This paper argues that we have natural inclinations to be kind, generous towards others, make sacrifices, BUT Economic theory teaches us to be selfish, to maximize our utility, to be indifferent to others. See also my article, on how economics assumes that rational agents are the worst type of people: Homo Economicus, COLD, CALCULATING, and CALLOUS.

2.4     USEFUL Knowledge Transforms Men

39:9 Say: Are those who know equal with those who know not? But only men of understanding will pay heed.

4:113  God has bestowed upon thee from on high this divine writ and [given thee] wisdom, and has imparted unto thee the knowledge of what thou didst not know. And God’s favour upon thee is tremendous indeed

20:114 High above all is Allah, the King, the Truth! Be not in haste with the Qur’an before its revelation to thee is completed, but say, “O my Lord! advance me in knowledge.”

Hadeeth: “People are like mines of Gold and Silver”.

USEFUL KNOWLEDGE must teach you how to develop the potential which is contained in your heart. To be the BEST that you can be.

RECAP & SUMMARY

There exists such a thing as extremely useful knowledge This knowledge teaches us how to realize the potential for excellence which all human beings are born with — it teaches us how to be human. The Prophet SAW made dua for increase in his (useful) knowledge, and sought protection from harmful knowledge.

In your FORMAL education, you have only received HARMFUL knowledge (pretending to be useful knowledge. This harmful knowledge poisons the heart. That is why Prophet SAW sought protection from it.

2.5     How does this relate to Microeconomic Theory?

Microeconomics is not a theory about mathematics, it is a theory about HOW human being behave. Huge amount of evidence shows that this theory is false – human beings DO NOT behave in the way that micro theory tell us. If theory is false, can it give true results? Top economists CONTINUE to defend economic theory, even after they receive STRONG empirical evidence that it is false. For example, Milton Friedman said that theories can be true even if they make false assumptions (like “rational” behavior for human beings). See my paper: Karacuka, Mehmet, and Asad Zaman. “The empirical evidence against neoclassical utility theory: a review of the literature.” International Journal of Pluralism and Economics Education 3.4 (2012): 366-414.

2.6     The Struggle to Overcome Brainwashing

Economic theory is like brainwashing – it creates a strong mental conditioning or mindset, which creates a great obstacle to seeing the truth. See my post on “Learning to Think Like an Economist”. Then, in order to reach the truth, a great effort is required in UNLEARNING all of the false things that you have been taught to believe. This effort is much greater than that needed to arrive at the truth. This effort has been described by Keynes in his General Theory:

The composition of this book has been … a long struggle of escape … from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping the old ones, which ramify … into every corner of our minds. (Keynes 1936: viii)

Contrary to what students have been taught to believe, Economics is brainwashing. Makes us believe outrageous lies. Makes it difficult to see or understand the truth. The TRUTH is easy to understand, self-evident, shines in the dark, enters the HEART. Finding TRUTH is not difficult – the difficult part is CLEANSING your HEART of LIES you have been taught to believe. For a description of my experiences — how I was brainwashed, and how I learned that I had been taught lies — see my post on The Education of an Economist.

3      Creating Confidence and Courage

Karl Marx said that the Capitalist system not only exploits workers, but also convinces them to agree willingly to this exploitation by teaching them that this is the best possible system, and that it is futile to struggle against it. This is precisely what is accomplished by modern economic theory. It teaches students that the economic conditions around us are the best that can be achieved, given our present resources, which are “scarce”. It teaches students that capitalism has done a fantastic job in creating wealth for everyone, and has led to miraculous progress in the past century or so. It teaches us that all economic problems are created by hindrances to the operation of free markets, both by well-meaning individuals and by powerful and corrupt governments. It teaches that “perfect” competition is the ideal system, where any individual is small and powerless to affect market outcomes. Systems where small firms grow large and wield market power are harmful.

3.1     Scarcity is a Lie

The modern capitalist system, which we seen in operation around the world, leaves billions of people hungry, when they sleep at night. Economists are taught that this is due to “scarcity”, there is insufficient food to feed them all. This is a LIE. Empirical evidence shows that there is enough food to feed everybody, and (contrary to Malthus) food supplies have more than kept us with the rapidly expanding population. See my essay on Normative Foundations of Scarcity, which shows that scarcity exists only if we assume (as economists do) that needs backed by money (like that of the wealthy for expensive luxury goods) have priority over needs of children for food, if they are not backed by money to pay for the food.

3.2     Powerlessness is a Lie

Another important lie taught by modern social science is that one man cannot change the world, which is ruled by iron laws which all must follow. Students are made to believe that they are small and insignificant, and powerless to change the HUGE and powerful forces arrayed against them in the World.

3.3     Antidote

It is the TEACHERS’s JOB to revive inner confidence in students. Every one of them is unique and precious, and has the capability of changing the world. The Quran tells us that if you save one life, it is as if you have saved all of humanity. Making students believe in themselves, in striving to develop their hidden potentials, is difficult, because Capitalist education is designed to train students to be inter-changeable workers.  Students are educated to believe that purpose of knowledge is teach them skills to get a job, which will increase the value of their life. Without suck skills, they are worthless as human beings. This is true all over the world, but in the poor countries there is an additional poison which operates to destroy the students’ courage and confidence.

Centuries of defeat and exploitation by a vicious colonial system designed to systematically loot the colonies and enrich Europe have left deep marks on the psyche of both parties. Edward Said’s “Orientalism” explains how the conquest of the world through colonization created a superiority complex in the West. Correspondingly, being defeated, conquered and exploited created an inferiority complex in the East. See “Is Development the Accumulation of Wealth?” for an essay which provides some antidotes to this inferiority complex. Among my most popular videos is an 80min first lecture (BE L01 URDU) which seeks to inspire and motivate students.

Because of this defeated attitude, students do not question ridiculous theories of behavior, instead accepting them as gospel truth from the West. Despite strong evidence of repeated failures of these theories (as in the Global Financial Crisis), we continue to have blind faith that the West is powerful and wise, and so far above us, that we do not have the standing to criticize them.

4      Creating New Ways of Thinking

So how can we create change by teaching micro-economics, known to be a dull and dry subject full of strange and complex formulas and deep and difficult mathematics, with no relations to the real world, or to human beings? FIRST we must go to a higher level of thinking. Just like META-Physics means thinking about the nature of physical theories, this course is about META-Economics, where we look at the nature of economic theories as an outsider. The standard course teaches students the economics is the UNIQUE truth about the world, and you must learn it and believe in it. INSTEAD, we will teach how neoclassical economics is just one very limited way of thinking about economics, and there are many other alternative systems and theories, which are far more successful at understanding the world. How economic theory works, who it helps and hurts, and how it continues to be taught despite its manifest failures on many fronts – this will be the object of our investigation in this course.

A goal of this course is to explain that the Simplest Meta-theory is another LIE which we have been taught to believe in economics courses. This Simple Meta-Theory holds that Economic Theory is TRUE. We learn it because it gives us knowledge about the real world around us. By basing policies on this economic theory, we can achieve good economic outcomes. (For a more detailed discussion of Meta-Theories, see On the Central Importance of a Meta-Theory for Economics.)

There is a huge amount of evidence that modern economic theory is false. Conventional Economic Theory should be called ET1% (The Economic Theory of the Top 1%).  The theory is developed for the SOLE reason of protecting the interest of the 1% AGAINST the interests of the bottom 90%. The middle 9% face a CRUEL CHOICE: They can betray their own class, and join the top 1% as second level managers. In return for joining the exploiters, they get priviliges and benefits, perks and salaries, and some illusion that they are part of the ruling class. But they have to sell their consciences. ALTERNATIVELY, they can stand up for justice and starve. At least, this is what appears to be the case on the surface. As Allah T’aala says in the Holy Quran —

The Shaitaan promises you [the] poverty and orders you to immorality, while Allah promises you forgiveness from Him and bounty. And Allah (is) All-Encompassing, All-Knowing. (Q2:268)

It appears that we must sell our souls and conscience, otherwise we will become poor. But we must not be deceived by these appearances, and instead, we must learn to TRUST in the promise of Allah. For those who trust in Allah, He will open doors for them from where they cannot imagine, and provide them generously with his bounty.

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This entry was posted in Critique of Conventional Economics, islamic economics, Islamic Knowledge, methodology by Asad Zaman. Bookmark the permalink.

About Asad Zaman

BS Math MIT (1974), Ph.D. Econ Stanford (1978)] has taught at leading universities like Columbia, U. Penn., Johns Hopkins and Cal. Tech. Currently he is Vice Chancellor of Pakistan Institute of Development Economics. His textbook Statistical Foundations of Econometric Techniques (Academic Press, NY, 1996) is widely used in advanced graduate courses. His research on Islamic economics is widely cited, and has been highly influential in shaping the field. His publications in top ranked journals like Annals of Statistics, Journal of Econometrics, Econometric Theory, Journal of Labor Economics, etc. have more than a thousand citations as per Google Scholar.

3 thoughts on “Introduction: Islamic Approach to Micro

  1. Reblogged this on WEA Pedagogy Blog and commented:

    This post provides a summary of my first lecture, and links to the entire course of 30 lecture, on an Islamic Approach to Microeconomics. The first half of the course is based on Hill and Myatt Anti-Textbook of Micro. Teachers who wish to develop alternatives to conventional courses should find this material useful.

  2. Pingback: European Transition to Secular Thought | An Islamic WorldView

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