Social Theories can only be understood within their historical context. First Generation Islamic Economics was developed as part of the struggles to achieve liberation from colonization. It stressed the superiority of Islamic Economic System over Western economic systems of capitalism, communism, and socialism. Efforts to launch the political revolution required to control the state and create a macro level Islamic Economic system failed. As a result, 2nd Generation Islamic Economists took an evolutionary approach, and sought to modify capitalism in a step-by-step approach, to move towards and Islamic system. However, this approach failed to bear fruits, and disastrous shortcomings of capitalism became obvious to all in the Global Financial Crisis of 2007. This has led to efforts to build 3rd Generation Islamic Economics on the revolutionary foundations of the 1st Generation, while incorporating many lessons of historical experience, as well as many insights from the 2nd Generation.

1. Download these slides from:
http://bit.ly/SS3GIE

2. Three
Generations of
Islamic Economics
Dr. Asad Zaman
AIOU International Conference on
Islamic Finance

3. Dramatic Mistakes in Development of
Social Sciences in the West
Amazing Western progress in the physical sciences impacts our
lives on a daily basis. This has led the vast majority of Muslim
intellectuals to be in shock-and-awe of Western science.
Social “Science” uses the word “science” to borrow the respect
given to physical science. However, Western social sciences
have been disastrous failures around the globe.
“The Grand Deception: Social Science”: http://bit.ly/AZgdss1
The development of Western Social Science (not applicable to
Eastern societies) is based on several fundamental errors. ONE
methodological error of importance for this talk is discussed in
the next slide.

4. The Battle of
Methodologies
Natural Methodology of Economics: Historical and
Qualitative. This was replaced by quantitative and
scientific methodology in late 19th Century.
This led to the search of universal laws, when there
are no universal laws in social science.
See: Method or Madness: http://bit.ly/WEAmom

5. Uloom-ul-Umran: Islamic
Alternative to SS
http://bit.ly/na2ie41
Ibn-e-Khaldun created a new method for analyzing
history.
He looked for underlying causes and drivers of social
change – this is radically different from the search for
equilibrium states (Economics).
Using Uloom-ul-Umran methodology leads to a radically
new and different approach to Economics.
This is based on the historical and qualitative approach,
which was abandoned by economists, and replaced by
quantitative and mathematical approach.

6. UUU: History, Geography,
Culture MATTER!
Social Theories are bound to their historical &
geographical context
Example: Keynesian Economics can only be understood
in context of the Great Depression.
This simple methodological principle is not understood
in Social “Science”
See: http://bit.ly/AZUUU (Uloom-ul-Umran)

7. Application to Islamic
Economics
Why did Islamic Economics Emerge in early 20th Century?
How can this subject be “Islamic” when it cannot be found
(directly) in the Quran & Sunnah?
See my paper on The Crisis in Islamic Economics for detailed
answers.

8. Birth of First-
Generation Islamic
Economics

9. Ideological Basis for Freedom Struggles
Early 20th Century: 90% of Islamic world is colonized or
subjugated, under influence of Western powers.
1914-1918: World War 1: saps strengths of Western
powers. Provides global military experience to colonial
armies.
1942-1944: World War 2: Liberation struggles start all
over the Islamic World.
Liberation struggles require an ideological basis – What is
worth dying for? Islam provides a basis for seeking
freedom from rule of non-Muslims. Islamic Economics
provided ONE ideological basis for freedom

10. Critical Issue: Economics is a
RELIGION!
http://bit.ly/AZroe
More than a century of religious wars in Europe led to rejection of
Christianity as a basis for organizing society.
Politics and Economics were born as a REPLACEMENT for Bible-based
scholastic school of thought.
Rejection of God, Afterlife, Judgement, led to making Wealth the
goal of worldly life. Pursuit of Wealth replaced Christianity!
Adam Smith: The Wealth of Nations.
Capitalism, Communism, Socialism, were all different ways to
organize society so as to maximize wealth.

11. Islamic Economics was born in OPPOSITION to
Capitalism, Communism, and Socialism
Critical Messages:
Life is NOT about pursuit of wealth.
Islam offers us BETTER ways to organize societies along
political, economic, and social dimensions.
Why “Islamic Economics” in 20th Century? Why not
earlier?
Islamic teachings combine politics, economics, and
society – these are all entangled. To counter Western
religions focused on accumulation of wealth, 1st Gen IE
gathered teachings of Islam related to Economics in one
place.

12. Claims of 1st Gen IE
Islamic Economic System is far superior to Western
Economic Systems.
It guarantees prosperity for all, and economic justice.
It is founded on principles of generosity, cooperation,
social responsibility, and the search for success in the
Akhira.
These are opposed to the fundamental principles of
capitalism: greed, competition, individualism, and
hedonism

13. Failure of Political Islam
Post-liberation, Western educated intellectuals took over
colonized Islamic World. Armies, Politicians, and Social Elites were
purchased by colonizers to continue colonial policies.
Islamic thought leaders called for revolution against leaders of
Islamic world, to create Islamic governments (Political Islam was
born). But these efforts failed all over the Islamic world.
This led to re-thinking among Muslim intellectuals. Instead of
revolutionary approach, they decided to take an evolutionary
approach to creation of Islamic Economics. Start with capitalist
system, and MODIFY it to create an Islamic System. No political
revolution needed.

14. Birth of 2nd Generation
Islamic Economics.
• Revolutionary goals of 1st Generation were abandoned.
• 2G IE = Capitalism + (Zakat) – (Interest)
• 2G IE claimed to be a branch of capitalism, which worked (a
little bit) better than capitalism.
• Fundamental contradiction at heart of 2nd Gen IE: the attempt
to mix fire and water. Capitalism and Islam are based on
fundamentally opposite principles, and cannot be combined.
• Abundance (1G IE) => Scarcity (2G IE) => Abundance (3G IE)
• The First International Conference on
Islamic Economics
held at Makkah under the auspices of
King Abdulaziz University, Jeddah
February 21-26, 1976 (Safer 21-26, 1396H)
•

15. The Crisis in Islamic
Economics
1st Lecture of: A New Approach to Islamic Economics:
http://bit.ly/IslamicEcon2023
First lecture, on above topic, explains that Islamic Economics
failed to make any progress for thirty years BECAUSE it
attempted to build on Capitalist Economics. This is an impossible
task!
During the same period of time – behavioral and experimental
economics, sustainable development, agent-based and
evolutionary models, Doughnut Economics, Environmental
Economics, emerged and were very successful.

16. Critical Questions for the 2nd Generation
Many revolutionary ideas have emerged in heterodox economics,
which have significant insights to offer for real world.
Does the complete and perfect final message of God to mankind –
The Quran and Sunnah – offer us no guidance regarding our
worldly affairs?
Why do we not have even a SINGLE new idea to offer in the realm
of economics?
ANSWER: Because we are attempting to build Islamic Economics
on Capitalist Foundations. We cannot combine worship of wealth
and pleasure with worship of Allah.
“Reviving the Promise of Islamic Economics” http://bit.ly/AZRPIE

17. Global Financial Crisis of 2007-8
None of the Macro-Economic Models and no major economist
predicted this crisis.
After it happened, no one had any clear ideas as to its cause.
Remedies undertaken were based on faulty monetary theories,
and FAILED to prevent the Great Recession which followed.
It became obvious to all the Economics has no relationship to
reality, creating a crisis in orthodox economic theory. Since 2nd
Gen IE built Islamic Economics on foundations of orthodox
economics, it was also discredited.
Completing the Circle: From Great Depression 1929 to Global
Financial Crisis 2007: http://bit.ly/gd29gfc

18. Birth of Third Generation Islamic Economics
Critical Realizations:
1. It is impossible to build Islamic Economics as a
modification of Capitalism. Capitalism is the
RELIGION of worship of wealth.
2. It is not necessary to have political power in order to
practice the fundamental principles of Islamic
economics.
3. Focus on the Micro-Aspects studied by the 2nd
Generation, instead of system-wide Macro-Aspects
of 1st Generation.
4. Reject Micro and Macro, Replace by Meso and
Ummah

19. Islamic Economics: The Polar Opposite
of Capitalist Economics
Islamic Economics Capitalism
Generosity Greed
Cooperation Competition
Social Responsibility Individualism
Success on Judgment Day Maximization of
Worldly Pleasure

20. 3rd Generation Projects for Islamic
Economics
• Building Genuine Islamic Financial Institutions
• A New Vision for Islamic Banks
• Building Human Beings Instead of Human Resources
• Building Social Networks, not Market Relations
• Trust-Based Money, instead of Gold-Based Money
• Ensuring Everyone Contributes Productively to Society

21. Building Genuine Islamic Financial Institutions
Most Modern Islamic Financial Institutions are built on
2nd Generation Theoretical Foundations. They take
capitalism for granted, and seek to make minor
modifications to “islamize” institutions.
Instead, Genuine Islamic Financial Institutions promote
cooperation, equity, and justice. They place risk on
wealthier party, finance socially valuable projects, and
prevent concentration of wealth.
http://bit.ly/bgifi

22. A New Vision for Islamic Banks
http://bit.ly/AZibf
Islamic Banks should seek to serve people, instead of making
profits.
Skill Loans: Provide short-term loans to train people to take jobs,
or start businesses – replicating graduation from poverty
programs.
Warning: Success requires a DIFFERENT skill-set from
conventional
Life-Loans: Provide sufficient money to every newborn for 20
years to enable them to become productive members of society.

23. Capitalism Versus Social
Networks
Central to capitalism: Market relationships trump social
relationships
To create change, lower our commitments to market
roles and relationships, and strengthen our social
commitments to family, neighborhood, kinfolk, and
Ummah.
Lecture 6: Drivers of Social Change
A New Approach to Islamic Economics – online course
http://bit.ly/IslamicEcon2023

24. MMT & Triple-Zero
Economy
Modern Monetary Theory
Understanding nature and role of money allows us to
achieve a triple-Zero economy:
Zero Inflation, Zero Unemployment, Zero Interest
This is impossible with conventional understanding of
money as taught in modern macro textbooks.
See: MMT for Pakistan
http://bit.ly/MMT1Pak
First of a sequence of posts on how to apply MMT to
Islamic Economies.

25. Revolutionary Potential of 3rd Gen IE
3rd Gen IE has its own ontology, epistemology, theory, and
methodology. These are radically different from modern Economics.
3rd Gen IE aims to REPLACE modern economics, NOT to supplement it.
Generosity Cooperation
Social
Responsibility
Success on
Judgement
Day

26. The Bigger Picture
It appears that we have been defeated on the
battleground of KNOWLEDGE. This is not acceptable to
Muslims – The Quran gives knowledge which humans do
not have, and are incapable of producing.
The challenge is to PROVE the superiority, completeness,
and perfection of the final message. This involves
showing that modern economics is vastly inferior to
Quran teachings about economics.

27. The Ghazali Project
Al Munqid Min-al-Dalala: Deliverance from Darkness =>
Faith in the message of God as complete and perfect
guidance for all times.
Tahafatul Falasafa: Incoherence of the Philosophers =>
Rejection of Western Social Sciences as failed religion of
the West.
Ihya-Uloom-ud-Deen. Revival of the Religious Sciences.
=> Rebuilding the entire stock of modern human
knowledge on Islamic Foundations.

28. How to Launch An Islamic Revival
Ten Lectures on the Ghazali Project
http://bit.ly/azlir
The fundamental diagnosis, which leads to the Ghazali
Project, is that of the Modern Mu’tazila:
http://bit.ly/AZtmm
The ancient Mu’tazila were so impressed with Greek
philosophy that they put it on par with the Quran.
The modern Mu’tazila are so impressed with science
and Western knowledge that they have put it above
the Quran.

29. Download these slides from: http://bit.ly/SS3GIE
َ‫و‬ْ‫ال‬ ِ‫ت‬‫ا‬َ‫م‬ُ‫ل‬ُ‫ظ‬ ْ‫ن‬ِ‫م‬ ‫ي‬ِ‫ن‬ْ‫ج‬ ِ
‫َر‬‫خ‬ َ‫و‬ ِ‫م‬ْ‫ه‬َ‫ف‬ْ‫ال‬ ِ
‫ور‬ُ‫ن‬ِ‫ب‬ ‫ي‬ِ‫ن‬ْ‫م‬ ِ
‫ر‬ْ‫ك‬َ‫أ‬ َّ‫م‬ُ‫ه‬َّ‫الل‬
ْ‫ن‬‫ا‬ َ‫و‬ ِ‫ة‬َ‫ف‬ ِ
‫ر‬ْ‫ع‬َ‫م‬ْ‫ال‬ َ‫اب‬ َ‫ْو‬‫ب‬َ‫أ‬ ‫َا‬‫ن‬ْ‫ي‬َ‫ل‬َ‫ع‬ ْ‫ح‬َ‫ت‬ْ‫ف‬‫ا‬ َ‫و‬ ِ‫م‬ْ‫ه‬
‫َا‬‫ن‬ْ‫ي‬َ‫ل‬َ‫ع‬ ْ‫ر‬ُ‫ش‬
َ‫ين‬ِ‫م‬ ِ‫اح‬َّ‫الر‬ َ‫م‬َ‫ح‬ ْ‫ر‬َ‫أ‬ ‫ا‬َ‫ي‬ َ‫ك‬ِ‫ت‬َ‫ف‬ ِ
‫ر‬ِ‫ع‬َ‫م‬ َ‫ان‬َ‫ز‬ُ‫خ‬
.
ِ‫ف‬ ‫ي‬ِ‫ن‬ْ‫ق‬ِ‫ف‬ َ‫و‬ َّ‫م‬ُ‫ه‬َّ‫الل‬
‫ا‬ ِ‫ت‬ َ
‫َل‬ِ‫ك‬ْ‫ش‬ُ‫م‬ َ‫ع‬‫ي‬ِ‫م‬َ‫ج‬ ْ‫غ‬ِ‫ل‬ْ‫ب‬َ‫أ‬ ِ‫ه‬ِ‫ب‬ َ‫ين‬ِ‫ع‬‫ي‬ِ‫ط‬ُ‫م‬ْ‫ال‬ ‫ي‬
ِ‫ل‬ِ‫ئ‬‫ا‬َ‫س‬َ‫م‬ْ‫ل‬
َ‫ين‬ِ‫م‬ ِ‫اح‬َّ‫الر‬ َ‫م‬َ‫ح‬ ْ‫ر‬َ‫أ‬ ‫ا‬َ‫ي‬ َ‫ك‬ِ‫ت‬َ‫م‬ْ‫ح‬َ‫ر‬ِ‫ب‬ ِ‫ب‬ُ‫ت‬ُ‫ك‬ْ‫ال‬ َ‫ن‬ِ‫م‬
.
‫آمين‬ ‫اللهم‬
.