WHAT IS ISLAMIC ECONOMICS? Ausaf Ahmad Presentation at Azerbaijan State Economics University Baku April 07, 2008

In the name of Allah, The Most beneficent, The Most Merciful.

Could there be an Islamic Economics? To many, an expression like Islamic Economics may seem a contradiction in terms. Could there be an Islamic economics, any more than an Islamic Physics or Islamic Mathematics.? Surprisingly the answer is yes. There could not be an Islamic Physics or Mathematics. But, there could be Islamic economics.

Economics is a value based subject Scarcity is said to be the core of economic problem. Western View of Scarcity: Scarcity is the result of niggardliness of nature (Ricardo) Muslim Economists: Scarcity is relative to wants. God is not miser. He is benevolent.

Islamic Critique of Modern Economics There is a conflict between the world view and goals. Economics classical paradigm is based on the concepts derived from its world view Economic man and invisible hands. Positivism i.e. value neutrality and universalism Efficacy and efficiency of market (No Market Failure)

Pareto Optimality and Normative Goals Market solution is optimal i.e. interaction of utility maximizing consumer and profit maximizing producers shall produce an optimal market solution. Definition of Pareto optimality: A solution is Pareto Optimal if it could not be improved without making some one worse off. No mention of equity.

Islamic Paradigm of Economics Islams economic paradigm is based on Islamic religion and Islamic moral values. Concept of Tawheed Divine ownership of Resources, Man is only vicegerent. He holds ownership in trust. In contemporary economics, ownership is absolute. In Islamic economics, it is subject to Islamic laws. Do not have right to waste.

Islamic Paradigm of Economics contd. Motivating factors: Self interest Islamic View: importance of self interest is not denied but significance of other factors (patriotism, love of humanity, fear of God ) is appreciated. Independent utilities Vs interdependent utilities.

Islamic Paradigm of Economics contd. Two Level Filtering: Economic filtering and moral filtering. Moral filtering is required because there is no inherent harmony between individual and social interests as assumed by Adam Smith. Example: Expenditure on education and liqueur in the United States.

Islamic Paradigm of Economics contd. Social and economic re-structuring Role of State Permissive Role Capitalism Interventionist Welfare State Totalitarian RoleSocialism Guidance cum permissive Role Islam