The Crisis in Islamic Economics

Abstract

The paper quotes leading Islamic Economists who are saying that the field of Islamic Economics has gone astray, and abandoned the original vision and mission of the founders. In this article we argue that the main reason for the current crisis is that most Muslim economists have accepted too many of the ideas of Western economists uncritically. The methodological framework, and underlying assumptions are wrong, and also in conflict with Islamic views. The paper describes four fundamental flaws in conventional theories. (1) A-historical approach, which takes economic laws to be universal invariants, instead of being bound by historical context and social norms. (2) Mathematical methodogology which fails to recognize free will and lack of determinacy of human behavior. (3) Materialist theories fail to recognize the all important invisible characteristics like trust, community, social and spiritual capital which are the true drivers of development. (4) Erroneous assertions and claims that economic theories are factual and objective, when in fact they are normative.

Islamic economics has failed because of the attempt to combine contradictory bodies of knowledge. Alternative foundations on which a genuine Islamic economic theory could be constructed involve recognizing the freedom of human beings to choose between good and evil. The goal of an Islamic economics is to create a spiritual transformation in human beings, and to use material means to bring this about. Instead of being normative or positive, it is transformative.

Keywords: Islamic Economics, Transformative, Normative, Positive, Flaws of Conventional Economics

JEL Classification: P4, B4