Describes history of 1st 2nd and 3rd Gen Islamic Economics

1. The History of
Islamic
economics:
Before and
After Islam
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2. Three
Generations of
Islamic Economics
Dr. Asad Zaman
Professor, Akhuwat University
Sunday, 26 November 2023
ISLAMIC ECONOMICS LITERACY : BASIC MUAMALAH SERIES
BSI SCHOLARSHIP BATCH 2 – BSI MASLAHAT
The History of Islamic economics: Before and After Islam

3. ْ
‫وا‬ُ‫م‬ ِ
‫َص‬‫ت‬ۡ‫ٱع‬ َ‫و‬
ِْ‫ل‬ۡ‫ب‬َ‫ح‬ِ‫ب‬
ْ
ِ َ
‫ٱّلل‬
‫ا‬ٗ‫يع‬ِ‫م‬َ‫ج‬
َْ
‫ل‬ َ‫و‬
ْ
‫وا‬ُ‫ق‬َ‫ر‬َ‫ف‬َ‫ت‬
ْۡ‫ٱذ‬ َ‫و‬
ْ
‫وا‬ُ‫ر‬ُ‫ك‬
َْ‫ت‬َ‫م‬ۡ‫ع‬ِ‫ن‬
ْ
ِ َ
‫ٱّلل‬
ْۡ‫م‬ُ‫ك‬ۡ‫ي‬َ‫ل‬َ‫ع‬
ْۡ‫ذ‬ِ‫إ‬
ْۡ‫م‬ُ‫ت‬‫ن‬ُ‫ك‬
ْٗ‫ء‬ٓ‫ا‬َ‫د‬ ۡ‫ع‬َ‫أ‬
َْ‫ف‬َ‫ل‬َ‫أ‬َ‫ف‬
َْ‫ن‬ۡ‫ي‬َ‫ب‬
ْۡ‫م‬ُ‫ك‬ِ‫ب‬‫و‬ُ‫ل‬ُ‫ق‬
‫م‬ُ‫ت‬ ۡ
‫ح‬َ‫ب‬ ۡ‫ص‬َ‫أ‬َ‫ف‬
ٓ‫ۦ‬ِ‫ه‬ِ‫ت‬َ‫م‬ۡ‫ع‬ِ‫ن‬ِ‫ب‬
‫ا‬ٗ‫ن‬ ََٰ‫و‬ ۡ
‫خ‬ِ‫إ‬
ْ
ُ‫ك‬ َ‫و‬
ْۡ‫م‬ُ‫ت‬‫ن‬
َْٰ
‫ى‬َ‫ل‬َ‫ع‬
‫ا‬َ‫ف‬َ‫ش‬
ْ
‫ة‬ َ‫ر‬ۡ‫ف‬ُ‫ح‬
َْ‫ن‬ِ‫م‬
ِْ
‫ار‬َ‫ن‬‫ٱل‬
ْ
َ‫أ‬َ‫ف‬
‫م‬ُ‫ك‬َ‫ذ‬َ‫ق‬‫ن‬
ْ
‫ا‬َ‫ه‬ۡ‫ن‬ِ‫م‬
َْ‫ك‬ِ‫ل‬ََٰ‫ذ‬َ‫ك‬
ُْ‫ن‬ِ‫ي‬َ‫ب‬ُ‫ي‬
ْ
ُ َ
‫ٱّلل‬
ْۡ‫م‬ُ‫ك‬َ‫ل‬
‫ۦ‬ِ‫ه‬ِ‫ت‬ََٰ‫ي‬‫ا‬َ‫ء‬
ْۡ‫م‬ُ‫ك‬َ‫ل‬َ‫ع‬َ‫ل‬
َْ‫ُون‬‫د‬َ‫ت‬ ۡ‫ه‬َ‫ت‬
And hold firmly to the rope of Allah all together and do not
become divided. And remember the favor of Allah upon
you – when you were enemies and He brought your hearts
together and you became, by His favor, brothers. And you
were on the edge of a pit of the Fire, and He saved you
from it. Thus does Allah make clear to you His verses that
you may be guided.

4. • Messenger of Allah (‫)ﷺ‬ said,
"The believers in their mutual
kindness, compassion and
sympathy are just like one body.
When one of the limbs suffers, the
whole body responds to it with
wakefulness and fever".

5. Islamic Economy is based on: Generosity, Cooperation, Social
Responsibility & Striving for Success on Day of Judgement
These principles are diametrically
opposed to Capitalism, based on Greed,
Competition, Individualism, and
Hedonism.

6. Institutions Reflect Spirit of Society
Islamic
Waqf: Spend Excess on Others
Takaful: Cooperative Spirit
Qarz-e-Hasana: Helping Poor
Guilds: Service to Society
Capitalist
Bank: Hoard & Accumulate
Insurance: Adversarial Gamble
Interest: Exploiting the Poor
Monopoly: Extract Excess
Profits
The spirit of Islam is “INFAQ” spending on others. There are more ayat
about INFAQ then about all of the five pillars combined!

7. Social Responsibility: Farz-e-
Kifaya
One of the great Islamic innovations – see: What the
World Lost Due to the Decline of Islamic Civilization –
http://bit.ly/azrdm
If anyone is hungry in our nation, the guilt and sin falls
upon all of us.
Social norms ensures that no one went hungry in Islamic
Civilization. Education and Health were collective
responsibility of society – NOT commodities for sale.

8. Today, Islamic Economies no
longer exist.
Why? The History of How Islamic Economies were
destroyed, by the process of colonization by the West.
How Islamic Economics emerged in the early 20th
Century, after Islamic countries were liberated from
Western control.
How this new discipline has changed and evolved under
the influence of historical circumstances.

9. Critical: The Necessity to Reject
Social Science
Rebuilding Social Science on Islamic Foundations: Parts 1 & 2
http://bit.ly/AZrss1 and http://bit.ly/AZrss2
Critical Defects:
1. Social Science is built on lessons derived from European history.
2. Social Science is not a “science” – universal laws for all societies.
3. The idea that Western Social Science applies to all societies is based
on Eurocentric assumption of superiority of the West.
Social science is used to structure societies according to Western patterns.
We need to reject it, and rebuild society on Islamic pattern.

10. 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.

11. 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)

12. 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.

13. Birth of First-
Generation Islamic
Economics

14. 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

15. 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.

16. 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.

17. 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

18. 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.

19. 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)
•

20. The Crisis in Islamic
Economics
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.

21. 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.

22. 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

23. 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

24. 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

25. 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

26. 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.

27. 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

28. 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.

29. 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

30. 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.

31. 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.

32. 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.

33. Download these slides from:
َْ‫و‬‫ْال‬ِ‫ت‬‫ا‬َ‫م‬ُ‫ل‬ُ‫ظ‬ْ‫ن‬ِ‫يْم‬ِ‫ن‬‫ج‬ ِ
‫َر‬‫خ‬ َ‫ْو‬ِ‫م‬‫ه‬َ‫ف‬‫ْال‬ ِ
‫ور‬ُ‫ن‬ِ‫ب‬ْ‫ي‬ِ‫ن‬‫م‬ ِ
‫ر‬‫ك‬َ‫أ‬َْ‫م‬ُ‫ه‬َ‫الل‬
ْ
‫ان‬ َ‫ْو‬ِ‫ة‬َ‫ف‬ ِ
‫ر‬‫ع‬َ‫م‬‫ْال‬َ‫اب‬ َ‫و‬‫ب‬َ‫أ‬ْ‫َا‬‫ن‬‫ي‬َ‫ل‬َ‫ع‬ْ‫ح‬َ‫ت‬‫اف‬ َ‫ْو‬ِ‫م‬‫ه‬
ْ‫َا‬‫ن‬‫ي‬َ‫ل‬َ‫ع‬ْ‫ر‬ُ‫ش‬
َْ‫ين‬ِ‫م‬ ِ‫اح‬َ‫ْالر‬َ‫م‬َ‫ح‬‫ر‬َ‫أ‬ْ‫ا‬َ‫ي‬َْ‫ك‬ِ‫ت‬َ‫ف‬ ِ
‫ر‬ِ‫ع‬َ‫م‬َْ‫ان‬َ‫ز‬ُ‫خ‬
.
ْ
ِ‫ف‬ْ‫ي‬ِ‫ن‬‫ق‬ِ‫ف‬ َ‫ْو‬َ‫م‬ُ‫ه‬َ‫الل‬
‫ْا‬ِ‫ت‬ َ
‫َل‬ِ‫ك‬‫ش‬ُ‫م‬َْ‫ع‬‫ي‬ِ‫م‬َ‫ج‬ْ‫غ‬ِ‫ل‬‫ب‬َ‫أ‬ِْ‫ه‬ِ‫ب‬َْ‫ين‬ِ‫ع‬‫ي‬ِ‫ط‬ُ‫م‬‫يْال‬
ِْ‫ل‬ِ‫ئ‬‫ا‬َ‫س‬َ‫م‬‫ل‬
َْ‫ين‬ِ‫م‬ ِ‫اح‬َ‫ْالر‬َ‫م‬َ‫ح‬‫ر‬َ‫أ‬ْ‫ا‬َ‫ي‬َْ‫ك‬ِ‫ت‬َ‫م‬‫ح‬َ‫ر‬ِ‫ب‬ِْ‫ب‬ُ‫ت‬ُ‫ك‬‫ْال‬َ‫ن‬ِ‫م‬
.
‫اللهمْآمين‬
.