THE NATURE AND SIGNIFICANCE OF

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THE NATURE AND SIGNIFICANCE OF ISLAMIC
ECONOMICS By M. UMER CHAPRA RESEARCH
ADVISOR ISLAMIC RESEARCH AND TRAINING
INSTITUTE ISLAMIC DEVELOPMENT BANK JEDDAH, SAUDI
ARABIA
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• 1. WHY ISLAMIC ECONOMICS?
• DO WE REALLY NEED A NEW DISCIPLINE IN ECONOMICS?
• CONVENTIONAL ECONOMICS WELL-DEVELOPED
• ISLAMIC ECONOMICS PRELIMINARY STAGE
• SUBJECT MATTER OF BOTH ALLOCATION AND
  DISTRIBUTION OF SCARCE RESOURCES
• THE DIFFERENCE?
• WORLDVIEW
• VISION
• STRATEGY TO REALIZE THE VISION

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• 2. WHY ARE WORLDVIEW AND VISION IMPORTANT?
• THEY DEFINE
• THE MEANING AND PURPOSE OF LIFE
• THE ULTIMATE OWNERSHIP AND OBJECTIVE OF LIMITED
  RESOURCES
• THE RIGHTS AND RESPONSIBILITIES OF INDIVIDUALS,
  FAMILIES, GROUPS AND ORGANIZATIONS
• THEY PROVIDE THE RIGHT VALUES AND MOTIVATION TO
  LIVE UP TO THESE VALUES
• IMPLICATIONS FOR ECONOMICS

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• 3. NATURE OF ISLAMIC ECONOMICS (1)
• IS ISLAMIC ECONOMICS A SCIENCE? CAN A RELIGIOUS
  WORLDWVIEW ENABLE IT TO BE A SCIENCE
• YES, BECAUSE IN ORDER TO BE USEFUL IT HAS TO
  OBJECTIVELY ESTABLISH THE CAUSE AND EFFECT
  RELATIONSHIP BETWEEN DIFFERENT VARIABLES
• IF A, THEN B A IS THE CAUSE, AND B IS THE
  EFFECT, OR BF(A), IF CERTAIN ASSUMPTIONS
  ARE SATISFIED.
• THIS IS A HYPOTHESIS
• THE ISLAMIC WORLDVIEW DOES NOT PREVENT IT FROM
  DOING SO
• WHEN DO WE ACCEPT A HYPOTHESIS AS A PART OF
  ISLAMIC ECONOMICS?
• METHOD?

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• HYPOTHESES OF ISLAMIC ECONOMICS
• THERE MAY BE DIFFERENT SOURCES OF HYPOTHESES
• THE QURAN AND THE SUNNAH ARE ONLY TWO SOURCES OF
  HYPOTHESES
• SOME EXAMPLES OF QURANIC HYPOTHESES
• ??? ??? ?? ??? ????
• WHOEVER COMMITS INJUSTICE (A) HE FACES RUIN (B)
• ?? ?????? ???? ??????
• IF YOU HELP GOD (A), GOD WILL HELP YOU (B).
• iii. ??? ???? ?? ???? ??? ?? ????? ????
• WHOEVER TURNS AWAY FORM MY MESSAGE (A)
  HE WILL HAVE A DIFFICULT LIFE (B)
• IMPLICATIONS OF THESE HYPOTHESES
• DO WE NEED TO TEST THESE HYPOTHESES?
• OTHER SOURCES OF HYPOTHESES

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• NATURE OF ISLAMIC ECONOMICS (2)
• IS IT ALSO AN ART? YES. THERE MUST A PURPOSE
  BEHIND THE ESTABLISHMENT OF CAUSE AND EFFECT
  RELATIONSHIP WHAT IS THE PURPOSE?
• CONVENTIONAL ECONOMICS
• SAMUELSON DESCRIPTION AND ANALYSIS
• FRIEDMAN PREDICTION
• ISLAMIC ECONOMICS ANALYSIS AND PREDICTION ARE
  BOTH NECESSARY, BUT THERE IS SOMETHING WHICH IS
  EVEN MORE IMPORTANT REALIZATION OF THE VISION
• THE ULTIMATE GOAL OF SCIENCE HAS TO BE THE
  SOLUTION OF PROBLEMS AND THE PROMOTION OF HUMAN
  WELL-BEING THE PROPHET, MAY THE PEACE AND
  BLESSINGS OF GOD BE ON HIM, SAID
• ????? ??? ???? ?? ?? ??? ?? ????
• (O GOD! I SEEK YOUR REFUGE FROM KNOWLEDGE THAT IS
  OF NO BENEFIT)

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• 6. WELL-BEING WHAT IT IS AND HOW CAN IT BE
  ATTAINED?
• WELL-BEING DEMANDS FULFILMENT OF ALL THE BASIC
  NEEDS OF ALL PEOPLE WITHOUT ANY DISCRIMINATION
• (i) MARERIAL NEEDS
• (ii) NON-MATERIAL NEEDS PEACE OF MIND, INNER
  HAPPINESS,
• SOCIO-ECONOMIC JUSTICE, FAMILY AND
  SOCIAL SOLIDARITY,
• ABSENCE OF CRIME AND ANOMIE
• ISLAMIC ECONOMICS RECOGNIZES BOTH THE NEEDS
• CONVENTIONAL ECONOMICS DOES NOT DISCUSS
  NON-MATERIAL NEEDS BECAUSE THESE ARE NOT
  MEASURABLE AND INVOLVE VALUE JUDGMENTS - IT
  THEREFORE EMPHASIZES MAXIMIZATION OF WEALTH AND
  WANT SATISFACTION ALL THE RESOURCES GET
  DIVERTED TO THE REALIZATION OF THIS OBJECTIVE
• COMPROMISE OR TRADE IN TO CREATE A BALANCE
  BETWEEN THE MATERIAL AND THE NON-MATERIAL NEEDS
• OPTIMIZATION INSTEAD OF MAXIMIZATION, AND
• NEEDS INSTEAD OF WANTS
• i.e. A BALANCE .

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• HOW TO CREATE A BALANCE IT IS ONE OF THE
  OBJECTIVES OF ISLAMIC WORLDVIEW AND ALSO OF
  ISLAMIC ECONOMICS TO HELP CREATE THIS BALANCE
• THE THREE QURANIC HYPOTHESES MENTIONED EARLIER
  AIM AT THE CREATION OF THIS BALANCE
• INJECT A MORAL DIMENSION INTO ECONOMICS
• PASS THE CLAIMS ON RESOURCES THORUGH BOTH THE
  MORAL AND PRICE FILTERS

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• PASS THE CLAIMS ON RESOURCES THROUGH BOTH THE
  MORAL AND THE PRICE FITTERS
• 
  Moral Filter
• 
  Price Filter
• THE TWO CAN TOGETHER HELP
• CREATE AN EQUILIBRIUM BETWEEN DEMAND AND SUPPLY,
  AND
• REALIZE HUMANITARIAN GOALS
• 
  
  S1
• P
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• P1
  
  
  P1
  S 2
• P2
  D1
  
  
• 
  D2
  P2
• 
  
  
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• 
  
  
  Q
  

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• THE ATTITUDE OF CONVENTIONAL AND ISLAMIC
  ECONOMICS TOWARDS SACRIFICE?
• CONVENTIONAL ECONOMICS DOES NOT HAVE A MOTIVATING
  FORCE OTHER THAN THE SERVING OF SELF-INTEREST
  PARETO OPTIMUM LEAVES NO ROOM FOR SACRIFICE,
  WHICH IS NECESSARY TO SERVE SOCIAL INTEREST AND
  TO PROMOTE THE WELL-BEING OF ALL
• ISLAMIC ECONOMICS RECOGNIZES THE CRUCIAL
  IMPORTANCE OF BOTH (THE SERVING OF SELF-INTEREST
  AS WELL AS THE MAKING OF SACRIFICE)
• INJECTION OF THE MORAL DIMENSION DOES NOT PREVENT
  THE SERVING OF SELF-INTEREST, IT MOTIVATES
  PEOPLE TO SACRIFICE FOR SERVING THE SOCIAL
  INTEREST

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• WHY SELF-INTEREST AND SACRIFICE ARE BOTH NEEDED
  TO REALIZE HUMAN WELL-BEING
• FOUR IMPORTANT INSTITUTIONS IN HUMAN SOCIETY
• A) MARKET
• B) FAMILY
• C) SOCIETY
• D) GOVERNMENT
• ALL OF THESE FOUR ARE INTERLINKED
• YOU CANNOT RUN ALL FOUR ON THE BASIS OF
  SELF-INTEREST SACRIFICE IS INDISPENSABLE
• INJECTION OF MORAL VALUES OR RULES OF BEHAVIOUR
  IS UNAVOIDABLE FOR REALIZING THE VISION

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• 10. HOW TO MOTIVATE PEOPLE TO ABIDE BY
  THE RULES OF BEHAVOUR WHEN THESE DEMAND
  SACRIFICE OF SELF-INTEREST
• GOODNESS OF HUMAN NATURE
• INCENTIVES AND DETERRENTS
• MARKET FORCES
• SOCIAL PRESSURES PRESTIGE AND OSTRACIZATION
• GOVERNMENT INTERVENTION AWARDS, FINES AND
• IMPRISONMENT
• ACCOUTABILITY BEFORE GOD REWARD AND
• PUNISHMENT IN THE HEREAFTER
• SOCIO-ECONOMIC AND POLITICAL RESTRUCTURING

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• 11. IBN KHALDUNS SOCIO-ECONOMIC AND POLITICAL
  DYNAMICS
• WHEN WE TALK OF
• THE WELL-BEING OF ALL, AND
• THE INTERRRELATIONSHIP OF MORAL, SOCIAL, ECONOMIC
  , POLITICAL AND HISTORICAL FACTORS,
• THEN WE CANNOT CONCENTRATE ONLY ON THE MARKET
  OTHER FACTORS MUST ALSO BE INTRODUCED INT0 THE
  ANALYSIS
• IBN KHALDUN DEVELOPED A MODEL WHICH TAKES ALL
  THESE FACTORS INTO ACCOUNT
• THE MODEL DID NOT GET DEVELOPED FURTHER AFTER IBN
  KHALDUN ONLY A FEW LUMINARIES
• AL-MAQRIZI (d. 845/1142), AL-ASADI (d.
  854/1452), SHAH WALIYULLAH (d. 1178/1762).

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• 12. THE RECENT REVIVAL OF ISLAMIC ECONOMICS
• REJECTION OF THE THREE PILLARS OF CONVENTIONAL
  ECONOMICS
• RATIONAL ECONOMIC MAN SELF-INTEREST
• POSITIVISM UNRESTRAINED FREEDOM PARETO OPTIMUM
• LAISSEZ FAIRE
• ALL THESE THREE PILLARS ARE IN CONFLICT WITH THE
  HUMANITARIAN GOALS OF SOCIETY

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• 13. METHOD OF ISLAMIC ECONOMICS
• HYPOTHESIS MUST BE IN HARMONY WITH THE LOGICAL
  STRUCTURE OF THE ISLAMIC PARADIGM EVEN IN
  CONVENTIONAL ECONOMICS, HARD CORE OR PROTECTIVE
  BELT IS ACCEPTED WITHOUT QUESTION.
• EXPLAINING RATIONALLY ILM AL-KALAM GOD DOES
  NOT OPERATE IN AN ARBITRARY MANNER
• TESTING AL-KINDI A SCHOLAR SHOULD NOT MAKE
  UNPROVEN STATEMENTS
• ASSUMPTIONS MUST BE REALISTIC

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• 14. PROGRESS IN DIFFERENT AREAS
• MONEY AND BANKING
• MACROECONOMICS AND MICROECONOMICS
• PUBLIC FINANCE
• ECONOMIC DEVELOPMENT
• INTERNATIONAL ECONOMICS AND GLOBALIZATION
• OTHER AREAS

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• 15. CONCLUDING REMARKS
• MICROECONOMICS NEEDS TO BE DEVELOPED WITHIN THE
  FRAMEWORK OF ISLAMIC VALUES TO SERVE AS A BASIS
  FOR MACROECONOMICS AND ALL OTHER AREAS OF
  ECONOMICS
• IBN KHALDUNS SOCIO-ECONOMIC AND POLITICAL
  DYNAMICS HAS NOT YET BECOME INCORPORATED INTO
  ISLAMIC ECONOMICS
• EMPIRICAL TESTING HAS RECEIVED LITTLE ATTENTION
• ISLAMIC ECONOMICS IS MORE DIFFICULT BUT NOT
  IMPOSSIBLE
• WORK THAT HAS ALREADY BEEN DONE BY CONVENTIONAL
  ECONOMICS AND OTHER SOCIAL SCIENCES CAN BE VERY
  HELPFUL WE WILL NOT BE STARTING FROM SCRATCH.