Crisis in Islamic Economics

[] Paper presented at the 8th Int’s Islamic Economics Conference, Doha, Qatar, 25-27 Dec. 2011. Subsequently published in JKAU: Islamic Economics journal: Crisis in Islamic Economics: Diagnosis and Prescriptions,” (CIE:DP), Journal of King Abdulaziz University: Islamic Economics, 25: 1 ,(April/May 2012)

Summary of paper: The fundamental problem facing the Ummah today has been described by Allama Iqbal as follows:


Translation: My eyes were not dazzled by the brilliance of Western knowledge, for they were protected by the Kohl made from the dust of Medina and Najf.

Unlike Iqbal, the eyes of the most of the Ummah HAVE been dazzled by the shine of the Western knowledge, so much say that they have come to regard it as being superior to the treasure of knowledge given to Muslims in the form of the Quran and the Sunnah. This is what creates the problem of the Modern Mu’tazila — the ancient Mu’tazila were overly impressed by Greek knowledge and considered to be on par with WaHy. Today, Muslim children all over the world spend an overwhelmingly large amount of time in acquiring Western knowledge, and relatively little of traditional Islamic knowledge, displaying the priorities of the Muslims in their evaluation of the relative value of the two types of knowledge. Below we present a brief, section-by-section, summary of the paper . The full paper is linked/attached at the bottom of the post.

1, Introduction (CIE:DP)

The secular Western education that we all receive is built on assumptions that contradict basic Islamic teachings; for example, the separation of state and religion, based on the idea that religion is a private and personal matter, and should not be brought into the public domain. Recognizing the conflicts between Western education and Islamic ideas, many Muslim intellectuals have argued that we need to Islamize Knowledge. At the dawn of the fifteenth century Hijrah, the Organization of Islamic Conference (OIC) created two universities – the International Islamic Universities of Islamabad and Malaysia – for this explicit purpose. All across the Islamic world, a large number of diverse initiatives have been launched for this purpose of integrating Western knowledge into our traditional Islamic knowledge.

This project — The Islamization of knowledge — is of vital importance to the Ummah of Muslims. The future of any community is strongly linked to the education received by the children in that community. Unfortunately, the problem, of being overly impressed by the West, has led to the failure of the project of Islamization of Knowledge. Instead of discarding elements of Western knowledge in conflict with Islam, Muslims have tried to re-interpret the Quran to make it conform to Western ideas. As a result, they have attempted to integrate two conflicting bodies of knowledge, which is an impossible task. This attempt to combine fire and water is the reason for the failure of these attempts.

This paper (CIE:DP) deals with ‘Islamic Economics’ (IE) or the project of Islamizing the Western discipline of economics. The same problems arise in Social Science as a whole; Western social sciences are based on rejection of religion, and make assumptions directly in conflict with Islamic principles. This is discussed separately, in Zaman (2009) “Origins of Western Social Sciences.”

2. Crisis in IE:

The second section of CIE:DP starts with quotes from several authors, leading lights of IE, discussing the deep problems facing the discipline — the fact that after more than thirty years, there is no common accepted definition of what the subject is, and there is no textbook accepted as a standard by all. The reason for this is that the parties engaged in the effort for constructing “Islamic Economics” have the misconception that IE  = Capitalism – Interest + Zakat. That is, IE will be constructed by starting with mainstream economics, removing un-Islamic elements, and adding Islamic ideas. Thus the program for Islamic Economics at IIIE, IIUI is based on teaching Western Economics, and adding to this the study of Arabic, Fiqh, and materials relevant to economics from traditional Islamic Sources. The main point of the paper is that this approach cannot succeed. This is because conventional Economics is in conflict with Islam and also conventional Economics is based on fundamentally wrong principles. We cannot mix Haqq (Truth) and Batil (Falsehood) and hope to get good results. A solid foundation for IE must be based on REJECTING the falsehoods taught in economic theory, and RE-CREATING the entire subject on the basis of purely Islamic foundations. How to do this is shown in my paper on Re-Defining Islamic Economics.

3. Four Fundamental Flaws of Conventional Economics

The 3rd section of CIE:DP explains why conventional economics is wrong. It lists four fundamental flaws in modern economics

  1. The idea is that Economics is a Science — the study of human beings cannot be based on principles that apply to physics, because human behavior is free, and unpredictable, unlike that of physical objects subject to laws of nature.
  2. Abandonment of Historical and Qualitative framework, and adoption of a mathematical framework.
  3. Materialism. The idea that the purpose of our lives is the maximization of pleasures obtained from consumption of goods and services.
  4. Concealment of the normative element of economics theories, and creation of the illusion that economics is positive — that is concrete, factual and objective.

All of these foundations errors are explained in greater detail in a later paper/talk on “Economics for the 21st Century“.  This section of the paper shows that modern economics is deeply flawed, and if we try to MIX this with Islamic teachings, we will be trying to build on falsehoods, mixed with truth. The only way forward to IE is to build on genuinely Islamic Foundations. These are spelled out in the later sections of the paper.

4: An Islamic Alternative

After rejecting conventional economics, the 4th section of CIE:DP shows how a genuine Islamic alternative would be radically different. This is broken down into several subtopics.

  1. The first step towards Islamic economics is to focus on creating a transformation in the hearts of men. This is further discussed in my later post on “Tranformation of Human Behavior as a Central Strategy for Islamic Economics“. This requires working on developing spirituality, morality, and providing useful knowledge which touches the heart — not the technical knowledge dealing with the external world, but blind to the internal realities of human heart and soul.
  2.  The second step is to note that while love of gold and attraction for evil is built into our Nafs, we must overcome these loves of base things, and elevate our hearts and spirits to love Allah, His Prophet, and His Message. When we purify our hearts, it will create the spirit of generosity within our hearts. Then we will be able to perform the highest form of worship, with is service to the creation of Allah, out of the love of Allah.
  3. The third step is to build a society which is tied together with bond of love for each other. Thus the fundamental principle of IE is cooperation, radically different from the competition assumed in modern economic theory.

5. Answering Common Objections: The 5th section of CIE:DP discusses some common objections made to this program of creating an entirely new and different way of doing IE, which rejects conventional economics altogether, and uses purely Islamic sources as a foundation for IE. (See “Questioning ALL of Economic Theory?“).

6. The Challenge and the Opportunity: The 6th section of CIE:DP explains that this situation — that all of modern economic theory is deeply flawed — creates both a challenge and a golden opportunity for Muslims. The challenge is to build a new theory, a radical alternative to conventional economics, based on purely Islamic principles. By now, it is widely known to many that modern economics is deeply flawed, and has led to crisis after crisis, and is leading us to an environmental catastrophe which may destroy the ability of human beings to live on this planet. The whole world is searching for an alternative.  My post on the need for a  “Radical Paradigm Shift” attracted a large amount of attention and comments on Real-World Economic Review (RWER) blog. We have the exciting opportunity available to create a new paradigm, based on Islamic principles, which will lead the world out of the darkness and difficulties currently being faced by humanity as a whole. In doing so, we will replicate how Islam came to world and gave light to a world full of darkness, and changed the course of history — this story is detailed beautifully in Syed Abul Hassan Ali Nadwi’s landmark book on “Islam and the West: What the World Lost due to the Decline of the Islamic Civilization.

Below is a link to a copy of this paper on SCRIBD, which can be read online, and also downloaded:


This entry was posted in Critique of Conventional Economics, islamic economics, Islamic Knowledge 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.

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