{Writeup/Video: bit.ly/cie3fce} Modern Economics cannot be Islamized because it is fundamentally flawed, beyond the possibility of repair. Four Flaws are discussed in these slides: (1) The idea that European economic models are universally applicable to all societies, (2) A quantitative and mathematical approach to human behavior, (3) The assumption that human welfare is based on material sources, rather than spiritual, psychological, and social. (4) The pretense of objectivity created by concealment of a toxic moral framework within the codeword of "rationality"

1. CIE3: Failures and Flaws of
Conventional Economics
Section 3 of Crisis in Islamic Economics
For writeup: http://bit.ly/cie3fce
Dr. Asad Zaman

2. Section 3 of Crisis in Islamic Economics
Links to previous sections:
Section 1: CIE1: Islamization of Knowledge: http://bit.ly/cie1iok
Section 2: CIE2: Is There a Crisis? http://bit.ly/cie2cri
This section 3, and explains the crisis in conventional economics
http://bit.ly/cie3fce
These slides can be downloaded from: http://bit.ly/SS3GIE3

3. Repeat Play: déjà vu?
Great Depression 1929 Global Financial Crisis 2007
Great Depression 1929

4. Distastrously Wrong
Predictions: 1929
Early October 1929:
Yale economist Irving Fisher was
jubilant. “Stock prices have
reached what looks like a
permanently high plateau,
“The Worst Stock Tip in History”
Based on economic theory which
idealizes free markets, and
argues that they automatically
eliminate unemployment.

5. Confidence in
Economic Theory
& Policy: 2003
Robert Lucas: Presidential Address to AEA in 2003: We have
solved the fundamental economic problem of prevention of
recessions!

6. Parallel Crisis in Conventional Economics
Classical Economists asserted that free markets lead to efficient
outcomes, supply (of labor) creates demand, No unemployment.
Great Depression 1929 took them by surprise.
Keynes created Macroeconomics, to explain unemployment.
Neoclassical synthesis rejected insights of Keynes, went back to
classical ideas.
Global Financial Crisis 2007 took neoclassicals by surprise.
Neo-Keynesian Macro is still awaited.

7. Crisis in Islamic Economics
1st Generation IE 2nd Generation IE

8. Transition in Islamic Economics
1st Generation Islamic Economics: post WW2
Conventional Capitalist Economics is deeply flawed. Islamic Economics
is a revolutionary alternative, both as a theoretical paradigm and as a
practical system.
2nd Generation Islamic Economics: 1976 Mecca Conference
Islamic Economics is a BRANCH of Capitalist Economics. Islamic
Economic system is a variant/modification of capitalist economic
system.
Crisis of Conventional Economics = Crisis of 2nd Generation IE.

9. Why Conventional
Economics Fails
REPEATEDLY?

10. Four Flaws of
Orthodox Economics
1. Economic Theories are Universal Laws
2. Economic Theories are Best Framed in
Mathematical Form
3. Economic Theories are Materialistic
4. Economic Theories are Positive not Normative .

11. First Flaw:
Economic
Theories are
Universal Laws

12. The Methodenstreit
• Fundamental Issue: How do we generalize from
historical experience?
• Historical, Qualitative Methods REPLACED by
Quantitative, Scientific Methods.

13. Social Science:
Eurocentricism
in Disguise
• Eurocentric ideas disguised as
universal laws – See the Puzzle
of Western Social Science.
• The failed attempt to use
scientific method to re-build
humanities on “scientific”
foundations in early 20th
Century.
• The consequences on education
– lack of morality.

14. Solutions:
• Historical, Qualitative Approach: Embeddedness of economic theory
within its historical context.
• Study effects of World Wars on evolution of Monetary Systems
• Study economic organization of traditional societies, based on:
• social responsibility,
• strong regulation of markets,
• social norms above individualism.

15. Mathematics:
Imitation of
Physics
Philip Mirowski: More Heat Than Light
Economics as fake Physics
Individuals, and Economic systems, obey
mathematical laws of motion.

16. Abuse of mathematics
by economists
Paul Krugman: the economics profession went
astray because economists, as a group, mistook
beauty, clad in impressive-looking
mathematics, for truth.
Paul Romer: “Mathiness" Use of unrealistic
assumptions and strained interpretations to
push an ideological agenda. A smokescreen of
fancy mathematics to disguise their intentions.

17. Solutions
Realist Models of Human Behavior: Complex and Changing Life-Goals.
No Maximization
Agent Based Models: Heterogeneity, Complexity, Not reducible to
formula
Evolutionary Economics: Replacement for EQUILIBRIUM
Disequilibrium Dynamics: Evolution of Physics from deterministic laws.

18. Materialistic World
View:
Building Heavens on Earth

19. Materialism
embodied in
economic theory
Max Weber: The Spirit of Capitalism is the pursuit of money for
its own sake, to the point of being irrational.

20. Solutions:
Goal: Development of our
built-in potential for
excellence
Man has the potential to be
the best of creations – and
also the potential to be the
worst of creations

21. Economic Theories
are Positive, not
Normative!
DECEPTION! !

22. Julie Nelson: Poisoning the Well: How Economic
Theory Damages our Moral Imagination.
We are generous: Economics teaches us to be selfish and greedy
We would like to pursue higher visions and ideals: Economics teaches
us that the goal of life is pursuit of pleasure from consumption.
We would like to act in socially responsible ways: Economics teaches us
that we must maximize profits or perish in competition; survival of the
fittest.
Experiments show that training in Economics leads people to become
selfish!

23. Life as a Spiritual
Journey
• Serving the Creation of God, for
the love of God
• Islam’s Gift: An Economy of
Spiritual Development
• From Homo Economicus Nafs-e-
Ammara, to Nafs-e-Lawwama, to
Nafse Mutma’inna Homo
Islamicus

24. Concluding Remarks
Modern Economics is deeply defective, anti-thetical to Islamic values.
Economics envisions as ideal: perfect competition, survival of the fittest
in dog-eat-dog jungle, selfish pursuit of pleasure as goal of life.
Islam teaches us to pursue spiritual progress via generosity, trust in
God, cooperation, social responsibility, and a life of service of humanity.
Crisis in Islamic Economics caused by efforts of the 2nd Generation to
MERGE these opposing visions.

25. Links to related materials:
Behavioral vs Neoclassical Economics: shows the dramatic differences
between actual human behavior, and economic axioms http://bit.do/azultima
Economic Theory as Ideology: explains the hidden ideological agenda behind
economic theory. http://bit.ly/AZetid
ET1%: Blindfolds Created by Economic Theory: explains how economic theory
is designed to appear as being favorable to the general public, whereas, in fact,
it supports the interests of the top 1% against the bottom 90%. {bit.ly/AZet1p}
Islam’s Gift: An Economy of Spiritual Development: Explains how an Islamic
Economic system is designed to foster spiritual development. {bit.do/ajes}