ECONOMICS AND ISLAMIC ECONOMICS AUSAF AHMAD Presentation on May 27th 2007 At Imaarat Shariah, Patna, Bihar

Dominance of Economic Issues Dominance of economic issues in social discussions. Economics has become the intellectual religion of the day. Lack of economic literacy Economic education

CLASSIFICATION OF KNOWLEDGE Divine Knowlege Human Knowledge Arts Sciences Natural Sciences Social Sciences

NATURAL SCIENCES MATHEMATICS NATURAL SCIENCES ASTRONOMY PHYSICS Chemistry Biology

SOCIAL SCIENCES SOCIAL SCIENCES ECONOMICS SOCILOGY POLITICS ANTHROPOLYGY HISTORY PSYCHOLOGY

DIFFERENT APPROACHES TO ECONOMICS Classical approach: Smith, Ricardo, J.B. Say Economics is the Science of Wealth. Critique of Classical Approach: Marx and Carlyle “Dismal Science” and “Bread and Butter Science” Neo Classical Approach: Economics studies human welfare Modern Approach: Economics studies how unlimited wants could be fulfilled with limited resources. It is a science of choice.

Economic goods and Free goods Distinction between economic goods and Free goods. Scarcity as a fact of economic life There is nothing like a Free lunch.

Economy and Economic organization Meaning of Economy An economy is a organization of human beings through which they carry out certain basic economic activities such as production, exchange, distribution and consumption to fulfil their needs. Basic Functions of an Economy

BASIC FUNCTIONS OF AN ECONOMY WHAT TO PRODUCE? [issue of Allocation of Resources ] HOW TO PRODUCE [ issue of choice of techniques ] FOR WHOM TO PRODUCE [ issue of Distribution of the produce

PRODUCTION POSSIBILITY CURVE Guns in thousands Substitution between Guns and Butter YC Y3 Y2 Y1 XC x1 x2 Butter in thousand kg x3

DIFFERENT VIEWS OF ECONOMY CONSUMPTION UNITS households Individuals Economy

DIFFERENT VIEWS OF ECONOMY PRODUCTION UNITS f Firms industries Sectors Sectors Economy

DIFFERENT VIEWS OF ECONOMY EXCHANGE UNITS Markets Economy

METHODS OF ECONOMIC INQUIRY Theoretical Methods Empirical Methods Both Methods are used in Economics No method is superior or inferior to other. Each method has its own limitation. To judge an economic data (result, principle or theory) one must consider how it has been arrived at.

THEORETICAL AND EMPIRICAL METHODS Experimental Design Real World Logical Model Experimental Abstraction Theoretical Abstraction Experiment Logical Reasoning Statistical Interpretation Result of Experiment Conclusions about the Real World. Theoretical Interpretation Logical Conclusion

Deductive and Inductive logic Deductive logic. Major and Minor Premises Conclusion is correct if major premise is correct. For example: All human beings are mortal. John is a human being. John is mortal. Necessarily True

EMERGENCE OF ISLAMIC ECONOMICS Economics is not a very old science. Islamic economics is even newer. The emergence of Islamic economic is the result of dissatisfaction with the value premises of Economic theory. Economic theory treats man as human economicus, motivated by only self interest which is supreme to every thing else. Economics divorced economic behavior from Ethical behavior.

Deductive and Inductive logic Incorrect Premises lead to incorrect conclusions: All Men are Stupid John is a man John is stupid. Not necessarily true

Deductive and Inductive logic John is stupid Tom is stupid Jack is stupid John, Tom and jack are humans Therefore, all humans are stupid. Not Necessarily True Based on the Law of Uniformity of Nature, which is itself unproved.

MICRO AND MACRO ECONOMICS Micro economics is the study of functioning of one unit of the economy i.e. an individual, a household, a market etc. Macro economics is the study of functioning of full economy, different units interacting with each other. It is not correct to say that one is more important or more correct than the other.

ISLAMIC CRITIQUE OF MODERN ECONOMICS Islam does not approve of value premises of modern economics. Modern economics assumes and treats man as homo-economicus, motivated only by self interest. The economy is perceived to be driven only by Profit motive. Modern economy gives more weight to efficiency in comparison to equity and justice.

EMERGENCE OF ISLAMIC ECONOMICS Economics is not a very old science. Islamic economics is even younger. The contributions of Muslim thinkers and philosophers have usually been neglected in the history of economics. Attention to Islamic economic system was diverted from Islamic banking and financial system.

Rudiments of Islamic Economic System SYSTEM OF OWNERSHIP: Private ownership of property Public ownership of property Voluntary ownership of property PRICE MECHANISM: Usually markets would be free but could be regulated, non market controls, Mohtasib ROLE OF STATE Balanced role

INTRODUCTION TO ISLAMIC ECONOMICS ISLMIC BANKING AND FINANCE MONETARY POLICY FISCAL POLICY MICRO ECONOMICS MACRO ECONOMICS DEVELOPMENT ECONOMICS

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