Comments on Fahim Khan: Theorizing Islamic Economics

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Comments on Fahim Khan: Theorizing Islamic Economics
Workshop on “Islamic Economics at Crossroads,” held at King Abdul Aziz University, Jeddah,
27-28 Al-Hajj 1433H (Nov. 12-13 2012)
By: Dr. Asad Zaman

Muslims face a situation today which bears a striking resemblance to early Islamic times when Greek philosophy was first translated into Arabic. Coming from a simple nomadic society, Muslims were extremely impressed with the complex and sophisticated discussions of the Greek Philosophers. The Mu’tazila were so impressed that they sought to absorb these teachings into the body of Islam itself. They argued that “reason” should be considered as being on par with “Wahy”. Logic was an innate faculty given to man by God, and this faculty was capable of reaching truth with certainty, equivalent to the certainty of the Revelation in the Quran and Sunnah. They managed to convince Khalifa Haroun Al-Rashid of this position, who then sought to enforce this on the Muslims using the coercive powers of the state. It was only the heroic resistance of some of the Ulema which saved Islam from being contaminated by defective Greek Philosophy. A landmark in the intellectual and spiritual battle was the book Tahafatul-Falasafa, in which Imam Ghazali refuted many major propositions of Greek Philosophy.
Today, Greek philosophy has largely been forgotten, while the Revelation remains as fresh, powerful, and deeply insightful as it was fourteen centuries ago. Most of the core propositions of Greek philosophers have been found to be wrong(e.g. the indivisibility of atoms, or that light rays emanate from the eyes, or the central position of Earth in the universe). Even more important, the kind of logic that was used in proving these propositions has been shown to be defective.
Today we face a similar situation in the context of Economic theory. With few exceptions, Islamic economists trained in Western schools have been so impressed with the teachings of the West that they have put them on par with the teachings of the Quran and the Sunnah. In cases where there is an apparent conflict between the two, they have a tendency to resolve the conflict by keeping Western teaching intact, while using creative interpretations of the Quran and Sunnah to bring the two into conformity. In my paper “Crisis in Islamic Economics: Diagnosis & Prescriptions” I have argued that it is this attempt to combine two conflicting and contradictory traditions that has led to the current crisis in Islamic Economics.
My position is extreme in its simplicity. I argue that the final message of Allah provides complete and perfect guidance for  us in economic affairs:
الْيَوْمَ أَكْمَلْتُ لَكُمْ دِينَكُمْ وَأَتْمَمْتُ عَلَيْكُمْ نِعْمَتِي وَرَضِيتُ لَكُمُ الإِسْلاَمَ دِينًا
[5:3]This day have I perfected your religion for you, completed Myfavour upon you, and have chosen for you Islam as your religion.
Today, large numbers of Muslims dispute these characteristics of the message of Islam. Islam Economists are convinced that there are major gaps in the teachings of Islam when it comes to economic affairs. They think that we need to borrow from the western sciences, whether it is neoclassical economics or institutional economics, or biology – this means that guidance from Allah is incomplete and we need to borrow from the west to fill in the gaps.  Similarly, they think that the guidance from Allah is imperfect. Allah T’aala made a mistake in prohibiting interest, but we can fix that by inventing Tawwaruq. Allah T’aala made a mistake in prohibiting bonds, but we can fix that by inventing Sukuk. Allah T’aala made a mistake in prohibiting derivatives, and several creative proposals to get around this difficulty are under discussion.  So the consensus among Islamic economists is that, when it comes to economics, the revelation is neither complete nor perfect.
I find that most Muslim economists misunderstand what I am saying. Against me, they argue that the Prophet himself borrowed the Persian technology of the Ditch. The Prophets.a.w. said that knowledge is the lost property of the Muslim, and that we may seek knowledge in China. The Prophet s.a.w. said that the revelation did not deal with the technology for planting date trees, and we may consult experts with worldly knowledge on this matter. As the Muslims came to govern a vast and expanding empire, they borrowed many technologies and administrative arrangements from non-Muslims.
In all of these cases, what was borrowed was useful and valid knowledge. In addition, these borrowings were not in conflict with core teachings of Islam.  I am arguing that the body of knowledge known as western economics, and the financial and economic institutions of the west are harmful and deficient, and also in conflict with Islamic teachings. I am not arguing that we should reject them because all western things are bad; rather we should reject them when they are wrong. My position is based on two observations:

1.  Islam provides detailed and extensive guidance on economic affairs. This guidance differs radically from that offered by the west. See my papers “An Islamic Critique of Neoclassical Economics” and “Islam Versus Economics” for detailed proofs of these assertions. We cannot borrow in areas where Islam provides guidance. For instance, most Islamic  Economists formulate theories about consumer behavior without taking into account Quranic teachings about Israf, Tabzeer, and many others related to this matter.
2.  Western economic theories are fundamentally flawed for two reasons:

a.   One is that nearly all of them assume that economic growth consists of increases in wealth. This is contrary to Islamic teachings, which emphasize human spiritual and character development.
b.   Also, western economic theories do not explicitly utilize any moral teachings, whereas moral teachings are central to Islam. As I have shown in my paper “Normative Foundations of Scarcity,” economic theories implicitly assume normative principles which are contrary to Islamic principles.

 What I am arguing is that the foundations of the methodology for Western social science are deeply flawed, in contradiction with Islamic principles, and completely un-acceptable as a basis for formulating Islamic economics. For a detailed explanation and defense of this position, see my paper “Origins of Western Social Sciences.”At the same time, Islam offers us complete guidance on economic affairs.
Thus for Muslims to attempt to borrow economic theories from Western sciences is analogous to a millionaire sitting with his begging bowl, and asking for loose change from poor passerbys.
As a single example, from among many more discussed in “An Islamic Critique of Neoclassical Economics,” consider the problem of scarcity. Conventionaleconomic theory considers this to be the central problem of economics, and proposes to solve it by increasing production. In fact, as Islam teaches, desires and wants will expand as we try to fulfill them, so the idea that growth will remove scarcity is fallacious. Islam provides a clear cut alternative and a viable solution. It says the we should not follow our idle desires. We can eat, drink, and wear nice clothing, but we should be wasteful in our spending. Also, it encourages us to live a simple lifestyle, and to spend the excess over our needs on others. This will solve the problem of scarcity, since there is no shortcoming at the level of needs – Allah T’aala has provided amply for all, according to his promise. There exist many, many writings by Islamic economists on microeconomics and consumption functions, but to the best of my knowledge, none have paid attention to the Islamic solution. Instead, all of them try to find justification for the wrong western economic theories of scarcity.   In this situation, is it permissible to ignore Islamic teachings and borrow from the west, as Islamic economists have been doing?

In accordance with prophecies made fourteen centuries ago, Islam has become a stranger to Muslims, who are ready to crawl into snakeholes in imitating the west. While Muslims are busily engaged in efforts to replicate western financial institutions and instruments in a Shari’ah compliant fashion, Western scholars are expressing their admiration for Islamic laws, adherence to which could have prevented the global financial crisis of 2007-8. See my article entitled “On Islamic Economics,” which shows how the west should be imitating Islamic rules, instead of us following them.

The type of thinking which is sorely needed today is the following. If interest and bonds and derivatives are prohibited by God, then this is due to a good reason. These must be harmful. Let us try to devise a system which works without these instruments. Once we start thinking along these lines, we will find that the Muslims had a rich and complete set of institutions for health, education, social welfare, trade and investment. These do not bear resemblance to modern western institutions, and provided results far superior to those currently available in the west. If we can re-create these institutions we will find ourselves the leaders, and find that the west will attempt to imitate our instruments. Instead of this type of thinking, what is taking place is the opposite: Since the West has banks, interest, bonds and derivatives, these must be good things. If they are not permissible within Islam, then we must modify Islamic laws to create replicas of these. Volker Nienhaus discussed the extreme extent of financial engineering being done to imitate and replicate Haram and dangerous western financial instruments, while remaining within the constraints of the Shari’ah. The charms of borrowing from the west extend to doing Shari’ah compliant earnings swap with non-Muslim firms, so as to allow access to Haram earnings. This would justify the “crawling into snake holes” analogy of the Hadeeth cited earlier.

Some participants did not see the relation between these comments and the paper of Fahim Khan at the workshop. Let me clarify that we do not need to re-invent theories of Islamic Economics or Islamic Economic theories because there is sufficient clarity on these matters within the source materials of Islam. Also, we do not need to borrow models for economics from any western sources because our religion provides complete and perfect guidance on economic affairs. What is needed is deep and serious research on how Islamic principles can be applied to conduct our economic affairs, instead of research on how biology can be used as a model for our economic affairs. These claims have been documented at length in other articles, some of which have been cited above.

Asad Zaman“Origins of Western Social Science” Journal of Islamic Economics, Banking and Finance, vol 5, number 2, May-August 2009, p. 9-22. Download from: < >

Asad Zaman: “On Islamic Economics,” Newspaper article published in Express Tribune on June 10, 2010: download from:<>

Asad Zaman “An Islamic Critique of Neoclassical Economics,” Pakistan Business Review, April 2012,

Asad Zaman “Crisis in Islamic Economics: Diagnosis and Prescriptions,” Discussion Paper, Journal of KingAbdul-AzizUniversity: Islamic Economics, 25: 1 ,(April/May 2012). Download from <>

Asad Zaman “Response to Comments on ‘Crisis in Islamic Economics’”. Rejoinder, Journal of KingAbdul-AzizUniversity: Islamic Economics, 25: 2, p.227-250,(Sept.  2012). Download from <>

Asad Zaman: “Islam Versus Economics” submitted to Islamic Studies, journal of Islamic Research Institute, International Islamic University of Islamabad: >

Asad Zaman:“The Normative Foundations of Scarcity,” Real-World Economics Review, issue no. 61, 26 September 2012, pp. 22-39. Download from: <>

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