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Welcome to Islamic Economic System

Course Instructor: Dr. Zahoor Khan

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Getting Start

Before we start;1.We need to understand some ideas (Important)2.We need to un-learn some perceptions, theories and Laws based on wrong Judgement (Very Important).3.We shall study critically major propositions of conventional economics

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists. ’ Joan Robinson

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Major Propositions and Islamic Alternatives

3.1. Is economics positive or normative science? Economics is often promoted and propagated as a positive science.

It’s considered as free from value judgement.

Major Propositions and Islamic Alternatives

Implicit value judgements are rooted throughout so-called ‘positive’ economics. The very definition of economics as the attempt to satisfy unlimited wants with limited resources is rooted in judgements about what makes human beings happy . It’s an individualistic view that ignores our social links, while shifting our attention towards efficiency (and away from questions of equity).

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Major Proposition and Islamic Alternatives

3.2. Islamic Economics is Prescriptive in nature.

Deriving guidelines and its Implementation in economic activities along with other activities is the genesis of Islamic Economics.

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Major Proposition and Islamic Alternatives

3.3. There is trade off between efficiency and equity.

we can achieve one at the cost of other.•Cooperation and coordination among the economic agents can simultaneously improve both: Efficiency and equity

Major Proposition and Islamic Alternatives

3.4. The concept of utality

It is positively related with the amount of given commodities.

(Implicitly) it is same across the different individuals and not influenced from external factors

•Economic wellbeing is subjective and influenced from external factors

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Major Proposition and Islamic Alternatives

3.5 Economic agents (consumer and producer) are assumed to be rational.

They should be able to promote their corresponding objectives (Utility maximization and profit maximizations).Economic rationality is based on dual objectives (Eternal and material success)

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Major Proposition and Islamic Alternatives

3.6 More is preferred over less….•Implicitly the focus is on efficiency and physical production• It is assumed that at individual level, well-being and happiness depend only on a person’s real income and consumption.•If one person is better off with more stuff, everyone is better off if everyone has more stuff .

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Major Proposition and Islamic Alternatives

3.6 More is preferred over less….•The evidence, ignored entirely in the textbooks, shows that in rich countries measures of average happiness have not increased as average incomes have risen substantially. •People simply seem to get used to their new circumstances, which quickly become the norm.

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Major Proposition and Islamic Alternatives

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Major Proposition and Islamic Alternatives

3.6 More is preferred over less….•Good evidence suggests, however, that relative position and status within groups matter a great deal to individuals’ happiness. •Alternatively more is preferred over less constrained by how more is accumulated and how more is re-distributed.

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Major Proposition and Islamic Alternatives

3.7 Least intervention of government in economic activities is beneficial…..•Over emphasize on market fundamentalism•Market failure, Market power and externalities are either ignored or underestimated.•Alternatively, Government intervention is not fair but obligatory to ensure economic balance at micro, meso and macro levels.

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Major Proposition and Islamic Alternatives

3.8 Human beings are selfish by nature which guide them to achieve their goals

efficiently… •Logical fallacy…if one individual can achieve his/her goal by selfish behavior …all individuals can also achieve their goals by selfish behavior…. So everyone will be better off…•Ignored factors…asymmetric information, difference in power and influence, common resources

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Major Proposition and Islamic Alternatives

Humans are not selfish by nature…. Selfishness is an adopted/learned behavior..Alternatively, Preference of collective interest over individual interest….

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Major Proposition and Islamic Alternatives

3.9: Too much focus on efficiency and productivity ruin and exploit resources….which is a fundamental right of current and future generation Alternatively, over emphasized focus on ecological elements and safeguarding environment.

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Major Proposition and Islamic Alternatives

Access to natural resources and getting benefits of them is a right of each individual human being. Allah (SWT) the creator and Sustainer of this universe has produced all things of human needs, but we have to acquire these resources the way He prescribes.Allah (SWT) has produced everything with a certain measurement and level, including environment, any disruption to change the mandatory proportion will cause harmful results to society and the environment.