I have taught at leading universities like Columbia, U. Penn., Johns Hopkins and Cal. Tech. My textbook Statistical Foundations of Econometric Techniques (Academic Press, NY, 1996) is widely used in advanced graduate courses. My research on Islamic economics is widely cited, and has been highly influential in shaping the field. I am deeply engaged in a project to create a revolutionary alternative to mainstream economics and econometrics. Both disciplines are based on flawed foundations of logical positivist ideas. My publications in top ranked journals like Annals of Statistics, Journal of Econometrics, Econometric Theory, Journal of Labor Economics, etc. have more than a thousand citations as per Google Scholar. Phone: +92 334 5164905 Address: House 5A, Street 33, F8/1, Islamabad, Pakistan
Modern game theory is based on assumptions about human behavior which are dramatically in conflic... more Modern game theory is based on assumptions about human behavior which are dramatically in conflict with reality. This course will demonstrate how our human experience and intuition allows us deep insights into simple games, whereas game theory leads to wrong conclusions. This is of great importance as insights based on theoretical game theory are used for conduct of economic policy all over the world. This is partly responsible for the flawed economic and political policies which has led to the climate crisis and many other major problems facing humanity today.
{Writeup: http://bit.ly/AZrdi0} Why are there more than 20 different definitions, no consensus, a... more {Writeup: http://bit.ly/AZrdi0} Why are there more than 20 different definitions, no consensus, and no widely accepted textbooks, which explain what the subject matter of Islamic Economics is? To answer this, we explain that Islamic Economics is diametrically opposed to Conventional Capitalist Economics on at least ten different dimensions. Second Generation Islamic Economists have attempted to build the subject as a MIXTURE of Capitalism and Islam. These efforts have failed because fire and ice cannot be combined. The paper provides a new definition of Islamic Economics based on PURELY Islamic foundations.
Lecture at Helsinki Institute of Sustainable Development on 22 Apr 2021 in lecture series on Glob... more Lecture at Helsinki Institute of Sustainable Development on 22 Apr 2021 in lecture series on Global South Encounters. For writeup of talk, and links to related works, see: http://bit.ly/HelSUS Eurocentric conceptions of development are restricted to accumulation of wealth. Every human being is born with infinite potential, and development involves trying to develop this potential to the fullest.
Social "Science" makes a false claim to universality. In fact, it is based on analysis of Europea... more Social "Science" makes a false claim to universality. In fact, it is based on analysis of European historical experience, and takes for granted Eurocentric assumptions about social, economic, and political institutions. This makes it essential to develop an alternative. This talk provides an alternative based on an Islamic perspective. It builds on foundations laid by Ibn-e-Khaldun which identifies social identity as the basis of collective action, and studies the process of social change. In his honor, we call this approach Uloom-ul-Umran; this also signals dropping of Eurocentric perspective. This is a video of a talk delivered at Ghazi University on 31st Aug 2021 -- A writeup of this talk is available from http://bit.ly/AZUUU
{for writeup, see: http://bit.ly/azGian01A} There is an age-old controversy about money. (1) Mone... more {for writeup, see: http://bit.ly/azGian01A} There is an age-old controversy about money. (1) Money is a creation of the state, governed by law. (2) Money arises spontaneously to facilitate exchange in markets. Curzio Giannini's book: The Age of Central Banks - starts by explaining how both aspects are essential to money. The state is required to create confidence in use of money, while the market necessitates its use. This summary of Sections 1 to 3 of Giannini provides a detailed explanation of money as a payment technology, and resolves many other puzzles surrounding money.
The discipline of modern statistics was built in the early 20th Century on logical positivist fou... more The discipline of modern statistics was built in the early 20th Century on logical positivist foundations. The collapse of logical positivism requires us to rebuild the discipline on new foundations. This presentation explains three major defects created by positivism in the foundations of statistics. The slides introduce a new online course, which rebuilds the entire discipline from the ground up, on the basis of realist philosophy. Interested readers can register for this course on the Google Form: HTTP://bit.ly/RSRA000
The concept of development and progress ultimately shape the value systems of human beings and dr... more The concept of development and progress ultimately shape the value systems of human beings and drive their efforts. The narrow conception of development solely in terms of economic growth has had a disastrous effect on the stability of our natural ecosystem and planetary resources by pitting human beings against each other in a competitive struggle for more and more. The purpose of the article is to highlight concisely the main critiques that have been raised against the flawed notions of development in neoclassical economics. We present cogently five different critiques-a) the ecological critique; b) the distributional critique; c) the Keynesian critique; d) the "economics as if people mattered" critique; and finally, e) the lack of pluralism critique
The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of... more The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of Europe, around the 13 th Century. The schoolmen used these material to construct a social theory encompassing economics, politics, governance, and community. The rapid influx of knowledge contrary to Catholic doctrines led to a breakup of the Church and a century of devastating factional warfare. This had a huge impact on European thought. In particular, it became necessary to develop social theory without religious or even moral foundations, because of the obvious failure of Christianity in this domain. Some aspects of this historical tradition from Christian society to secular modern society are described in this essay. Our emphasis is on aspects of this story which would be helpful to Islamic societies to resist the pressures towards secular modernity which face the Ummah today.
(Turkish Translation of English Article -- abstract in English) There is a huge number of definit... more (Turkish Translation of English Article -- abstract in English) There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources. We show that this definition differs radically from any available in the West, as well as the vast majority of definitions proposed by Islamic Economists. It creates entirely new ways of looking at and organizing the subject matter of Economics. This paper discusses ten dimensions of contrast, where our new definition suggests that the methodology of Islamic Economics is directly opposed to western methodology. Zaman (2012, Crisis In Islamic Economics) describes the current crisis in Islamic Economics, widely acknowledged by leaders in the field. Conventional views are that Islamic Economics must be a compromise between Islamic ideals embodied in homo islamicus, and realistic views embodied in homo economicus. However, there is substantial disagreement on the nature and extent of the compromise required. Consensus on defining “Islamic Economics” appears to be a pre-requisite for progress. I believe that a definition which can be justified purely and directly from Islamic sources will be able to command consensus that compromises cannot. Furthermore, this definition opens the way to radically new approaches, which can fulfill the promise initially held out by Islamic Economics. This (now largely forgotten) promise was that Islamic Economics will provide justice, and eliminate oppression and inequities associated with capitalist, communist and socialist economic systems.
Since Robbins (1932) influential essay on the methodology of economics, scarcity has been taken a... more Since Robbins (1932) influential essay on the methodology of economics, scarcity has been taken as the fundamental economic problem. We will argue that this is based on a tacit assumption of primacy of property rights. We illustrate how differing ethical commitments on part of a society lead to differing formulations of the fundamental economic problem.
Can the modern economy function without a market for interestbased credit? This question has acqu... more Can the modern economy function without a market for interestbased credit? This question has acquired some urgency in the wake of the recent Shariat Court ruling banning interest in Pakistan. Some pundits have pronounced that great harm will result from the banning of interest 1. Actually, such pronouncements are based on a lack of understanding of both the modern economic system, as well as the nature of the Islamic prohibition of interest. As we hope to demonstrate clearly below, the modern economy can function very well, indeed ...
The large majority of the criteria for model selection are functions of the usual variance
estim... more The large majority of the criteria for model selection are functions of the usual variance
estimate for a regression model. The validity of the usual variance estimate depends on
some assumptions, most critically the validity of the model being estimated. This is often
violated in model selection contexts, where model search takes place over invalid models.
A cross validated variance estimate is more robust to specification errors (see, for
example, Efron, 1983). We consider the effects of replacing the usual variance estimate
by a cross validated variance estimate, namely, the Prediction Sum of Squares (PRESS) in
the functions of several model selection criteria. Such replacements improve the
probability of finding the true model, at least in large samples.
The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of... more The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of Europe, around the 13 th Century. The schoolmen used these material to construct a social theory encompassing economics, politics, governance, and community. The rapid influx of knowledge contrary to Catholic doctrines led to a breakup of the Church and a century of devastating factional warfare. This had a huge impact on European thought. In particular, it became necessary to develop social theory without religious or even moral foundations, because of the obvious failure of Christianity in this domain. Some aspects of this historical tradition from Christian society to secular modern society are described in this essay. Our emphasis is on aspects of this story which would be helpful to Islamic societies to resist the pressures towards secular modernity which face the Ummah today.
Massive amounts of confusion exists regarding the definition of Islamic Economics. This has block... more Massive amounts of confusion exists regarding the definition of Islamic Economics. This has blocked progress in terms of the development of the discipline, since there is no agreement on what its proper subject matter and methodology is. This paper shows that the confusion arises because of our attempts to borrow foundational concepts and methodology from conventional capitalist economics. Modern economists advertise their discipline as a positive, objective, and factual science. However, it is actually a branch of moral philosophy, built on concealed moral foundations of competition, selfishness, individualism, and hedonism. Islamic economics cannot be built on such foundations. We can build the discipline of Islamic Economics on the diametrically opposite foundations of cooperation, generosity, brotherhood of mankind, and social responsibility. Instead of the methodology of Newtonian physics currently in use, we need to use the methodology of Ibne-Khaldun, created for studying the...
First generation Islamic economics promised to create a system with just and equitable economic o... more First generation Islamic economics promised to create a system with just and equitable economic outcomes, which would be far superior to capitalism and communism. Historical circumstances led the second generation to forget this promise, and to consider Islamic Economics as a minor variant of capitalism. The second generation has been trying to create a sharī'ah compliant system, where the form is Islamic but the spirit is capitalistic. We need to go back to the roots, and build a genuine Islamic system in form and spirit which is sharī'ah based, rather than sharī'ah compliant. By doing this, the third generation can revive the promise of Islamic Economics and create a model economic system which fulfills the promise of the first generation. JEL Classification: P4
Krugman has popularized the experiences of the Capitol Hill Baby-sitting Cooperative (BSC) as a f... more Krugman has popularized the experiences of the Capitol Hill Baby-sitting Cooperative (BSC) as a fundamental paradigm for macroeconomic policy. Many authors who have formally analyzed the story have concluded that money must be supplied in an optimal quantity for smooth functioning of the BSC economy. We create a natural model of the BSC which has sunspot equilibria. Agents must co-ordinate their expectations to arrive at an equilibrium. Our analysis shows that many of the lessons derived from the experience of the BSC depend on a particular choice of the equilibrium. Other choices can be more efficient and lead to different lessons. In particular, money holdings act like sunspots; they matter only if all agents agree that they matter. Surprisingly, flexible prices cannot solve the problem of mismatch between supply and demand. Also equilibria with excess supply may be more efficient than outcomes where supply and demand are matched. Our model shows that there are deep lessons to be learned from the BSC economy, but they are of a rather different nature from those derived by most authors. How expectations are formed, and how agents learn about other agents strategies form a crucial part of the equilibrium. These must be part of good models, and suitable interventions must take these into account. How agents can consciously choose among multiple equilibria and learn to coordinate on a particular choice requires more attention from economists.
Modern game theory is based on assumptions about human behavior which are dramatically in conflic... more Modern game theory is based on assumptions about human behavior which are dramatically in conflict with reality. This course will demonstrate how our human experience and intuition allows us deep insights into simple games, whereas game theory leads to wrong conclusions. This is of great importance as insights based on theoretical game theory are used for conduct of economic policy all over the world. This is partly responsible for the flawed economic and political policies which has led to the climate crisis and many other major problems facing humanity today.
{Writeup: http://bit.ly/AZrdi0} Why are there more than 20 different definitions, no consensus, a... more {Writeup: http://bit.ly/AZrdi0} Why are there more than 20 different definitions, no consensus, and no widely accepted textbooks, which explain what the subject matter of Islamic Economics is? To answer this, we explain that Islamic Economics is diametrically opposed to Conventional Capitalist Economics on at least ten different dimensions. Second Generation Islamic Economists have attempted to build the subject as a MIXTURE of Capitalism and Islam. These efforts have failed because fire and ice cannot be combined. The paper provides a new definition of Islamic Economics based on PURELY Islamic foundations.
Lecture at Helsinki Institute of Sustainable Development on 22 Apr 2021 in lecture series on Glob... more Lecture at Helsinki Institute of Sustainable Development on 22 Apr 2021 in lecture series on Global South Encounters. For writeup of talk, and links to related works, see: http://bit.ly/HelSUS Eurocentric conceptions of development are restricted to accumulation of wealth. Every human being is born with infinite potential, and development involves trying to develop this potential to the fullest.
Social "Science" makes a false claim to universality. In fact, it is based on analysis of Europea... more Social "Science" makes a false claim to universality. In fact, it is based on analysis of European historical experience, and takes for granted Eurocentric assumptions about social, economic, and political institutions. This makes it essential to develop an alternative. This talk provides an alternative based on an Islamic perspective. It builds on foundations laid by Ibn-e-Khaldun which identifies social identity as the basis of collective action, and studies the process of social change. In his honor, we call this approach Uloom-ul-Umran; this also signals dropping of Eurocentric perspective. This is a video of a talk delivered at Ghazi University on 31st Aug 2021 -- A writeup of this talk is available from http://bit.ly/AZUUU
{for writeup, see: http://bit.ly/azGian01A} There is an age-old controversy about money. (1) Mone... more {for writeup, see: http://bit.ly/azGian01A} There is an age-old controversy about money. (1) Money is a creation of the state, governed by law. (2) Money arises spontaneously to facilitate exchange in markets. Curzio Giannini's book: The Age of Central Banks - starts by explaining how both aspects are essential to money. The state is required to create confidence in use of money, while the market necessitates its use. This summary of Sections 1 to 3 of Giannini provides a detailed explanation of money as a payment technology, and resolves many other puzzles surrounding money.
The discipline of modern statistics was built in the early 20th Century on logical positivist fou... more The discipline of modern statistics was built in the early 20th Century on logical positivist foundations. The collapse of logical positivism requires us to rebuild the discipline on new foundations. This presentation explains three major defects created by positivism in the foundations of statistics. The slides introduce a new online course, which rebuilds the entire discipline from the ground up, on the basis of realist philosophy. Interested readers can register for this course on the Google Form: HTTP://bit.ly/RSRA000
The concept of development and progress ultimately shape the value systems of human beings and dr... more The concept of development and progress ultimately shape the value systems of human beings and drive their efforts. The narrow conception of development solely in terms of economic growth has had a disastrous effect on the stability of our natural ecosystem and planetary resources by pitting human beings against each other in a competitive struggle for more and more. The purpose of the article is to highlight concisely the main critiques that have been raised against the flawed notions of development in neoclassical economics. We present cogently five different critiques-a) the ecological critique; b) the distributional critique; c) the Keynesian critique; d) the "economics as if people mattered" critique; and finally, e) the lack of pluralism critique
The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of... more The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of Europe, around the 13 th Century. The schoolmen used these material to construct a social theory encompassing economics, politics, governance, and community. The rapid influx of knowledge contrary to Catholic doctrines led to a breakup of the Church and a century of devastating factional warfare. This had a huge impact on European thought. In particular, it became necessary to develop social theory without religious or even moral foundations, because of the obvious failure of Christianity in this domain. Some aspects of this historical tradition from Christian society to secular modern society are described in this essay. Our emphasis is on aspects of this story which would be helpful to Islamic societies to resist the pressures towards secular modernity which face the Ummah today.
(Turkish Translation of English Article -- abstract in English) There is a huge number of definit... more (Turkish Translation of English Article -- abstract in English) There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources. We show that this definition differs radically from any available in the West, as well as the vast majority of definitions proposed by Islamic Economists. It creates entirely new ways of looking at and organizing the subject matter of Economics. This paper discusses ten dimensions of contrast, where our new definition suggests that the methodology of Islamic Economics is directly opposed to western methodology. Zaman (2012, Crisis In Islamic Economics) describes the current crisis in Islamic Economics, widely acknowledged by leaders in the field. Conventional views are that Islamic Economics must be a compromise between Islamic ideals embodied in homo islamicus, and realistic views embodied in homo economicus. However, there is substantial disagreement on the nature and extent of the compromise required. Consensus on defining “Islamic Economics” appears to be a pre-requisite for progress. I believe that a definition which can be justified purely and directly from Islamic sources will be able to command consensus that compromises cannot. Furthermore, this definition opens the way to radically new approaches, which can fulfill the promise initially held out by Islamic Economics. This (now largely forgotten) promise was that Islamic Economics will provide justice, and eliminate oppression and inequities associated with capitalist, communist and socialist economic systems.
Since Robbins (1932) influential essay on the methodology of economics, scarcity has been taken a... more Since Robbins (1932) influential essay on the methodology of economics, scarcity has been taken as the fundamental economic problem. We will argue that this is based on a tacit assumption of primacy of property rights. We illustrate how differing ethical commitments on part of a society lead to differing formulations of the fundamental economic problem.
Can the modern economy function without a market for interestbased credit? This question has acqu... more Can the modern economy function without a market for interestbased credit? This question has acquired some urgency in the wake of the recent Shariat Court ruling banning interest in Pakistan. Some pundits have pronounced that great harm will result from the banning of interest 1. Actually, such pronouncements are based on a lack of understanding of both the modern economic system, as well as the nature of the Islamic prohibition of interest. As we hope to demonstrate clearly below, the modern economy can function very well, indeed ...
The large majority of the criteria for model selection are functions of the usual variance
estim... more The large majority of the criteria for model selection are functions of the usual variance
estimate for a regression model. The validity of the usual variance estimate depends on
some assumptions, most critically the validity of the model being estimated. This is often
violated in model selection contexts, where model search takes place over invalid models.
A cross validated variance estimate is more robust to specification errors (see, for
example, Efron, 1983). We consider the effects of replacing the usual variance estimate
by a cross validated variance estimate, namely, the Prediction Sum of Squares (PRESS) in
the functions of several model selection criteria. Such replacements improve the
probability of finding the true model, at least in large samples.
The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of... more The reconquest of Spain, and translations of book in the Islamic libraries ended the dark ages of Europe, around the 13 th Century. The schoolmen used these material to construct a social theory encompassing economics, politics, governance, and community. The rapid influx of knowledge contrary to Catholic doctrines led to a breakup of the Church and a century of devastating factional warfare. This had a huge impact on European thought. In particular, it became necessary to develop social theory without religious or even moral foundations, because of the obvious failure of Christianity in this domain. Some aspects of this historical tradition from Christian society to secular modern society are described in this essay. Our emphasis is on aspects of this story which would be helpful to Islamic societies to resist the pressures towards secular modernity which face the Ummah today.
Massive amounts of confusion exists regarding the definition of Islamic Economics. This has block... more Massive amounts of confusion exists regarding the definition of Islamic Economics. This has blocked progress in terms of the development of the discipline, since there is no agreement on what its proper subject matter and methodology is. This paper shows that the confusion arises because of our attempts to borrow foundational concepts and methodology from conventional capitalist economics. Modern economists advertise their discipline as a positive, objective, and factual science. However, it is actually a branch of moral philosophy, built on concealed moral foundations of competition, selfishness, individualism, and hedonism. Islamic economics cannot be built on such foundations. We can build the discipline of Islamic Economics on the diametrically opposite foundations of cooperation, generosity, brotherhood of mankind, and social responsibility. Instead of the methodology of Newtonian physics currently in use, we need to use the methodology of Ibne-Khaldun, created for studying the...
First generation Islamic economics promised to create a system with just and equitable economic o... more First generation Islamic economics promised to create a system with just and equitable economic outcomes, which would be far superior to capitalism and communism. Historical circumstances led the second generation to forget this promise, and to consider Islamic Economics as a minor variant of capitalism. The second generation has been trying to create a sharī'ah compliant system, where the form is Islamic but the spirit is capitalistic. We need to go back to the roots, and build a genuine Islamic system in form and spirit which is sharī'ah based, rather than sharī'ah compliant. By doing this, the third generation can revive the promise of Islamic Economics and create a model economic system which fulfills the promise of the first generation. JEL Classification: P4
Krugman has popularized the experiences of the Capitol Hill Baby-sitting Cooperative (BSC) as a f... more Krugman has popularized the experiences of the Capitol Hill Baby-sitting Cooperative (BSC) as a fundamental paradigm for macroeconomic policy. Many authors who have formally analyzed the story have concluded that money must be supplied in an optimal quantity for smooth functioning of the BSC economy. We create a natural model of the BSC which has sunspot equilibria. Agents must co-ordinate their expectations to arrive at an equilibrium. Our analysis shows that many of the lessons derived from the experience of the BSC depend on a particular choice of the equilibrium. Other choices can be more efficient and lead to different lessons. In particular, money holdings act like sunspots; they matter only if all agents agree that they matter. Surprisingly, flexible prices cannot solve the problem of mismatch between supply and demand. Also equilibria with excess supply may be more efficient than outcomes where supply and demand are matched. Our model shows that there are deep lessons to be learned from the BSC economy, but they are of a rather different nature from those derived by most authors. How expectations are formed, and how agents learn about other agents strategies form a crucial part of the equilibrium. These must be part of good models, and suitable interventions must take these into account. How agents can consciously choose among multiple equilibria and learn to coordinate on a particular choice requires more attention from economists.
Ibn-e-Khaldun wrote of the impact of conquest on the psychology of the conquered. This can be mad... more Ibn-e-Khaldun wrote of the impact of conquest on the psychology of the conquered. This can be made much more vivid by thinking about a possible complete conquest of Iraq by the USA. This fantasy serves to illuminate the current reality of how our perceptions of the world have been shaped by our history of having been colonized. These distorted perceptions form a major obstacle towards progress in desired directions.
Many authors have described and modelled Keynesian effects in a Baby-sitting Cooperative (BSC), w... more Many authors have described and modelled Keynesian effects in a Baby-sitting Cooperative (BSC), which has the underlying structure of a single good barter economy. We construct a simple model of the BSC economy to explore this issue, and find very surprising results. Outcomes depend on agents beliefs about the decision making process of others, as in the Keynesian beauty contest. For some structures of beliefs, money is neutral, while for others, money can have short and long run effects. The value of money can be high, low, or zero, depending purely upon expectational effects. Also, despite the fact that this is a single good economy, partial equilibrium supply and demand analysis do not work as expected. Some equilibria have excess supply, others have excess demand, and none have a match between supply and demand. Furthermore, flexible prices cannot fix this problem. An additional paradoxical property is that excessive trading can take place. Even though all trades are done with m...
For Turkish translation, see: https://ssrn.com/abstract=3139291 There is a huge number of definit... more For Turkish translation, see: https://ssrn.com/abstract=3139291 There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources. We show that this definition differs radically from any available in the West, as well as the vast majority of definitions proposed by Islamic Economists. It creates entirely new ways of looking at and organizing the subject matter of Economics. This paper discusses ten dimensions of contrast, where our new definition suggests that the methodology of Islamic Economics is directly opposed to western methodology. Zaman (...
Comparative Political Economy: Comparative Capitalism eJournal, 2021
Economics started out as a branch of Moral Philosophy. Early in the 20th Century, logical positiv... more Economics started out as a branch of Moral Philosophy. Early in the 20th Century, logical positivists argued that science is the only source of knowledge, and values are not part of science. The desire to make humanities “scientific” led to the creation of the “social sciences”, which claimed to be objective and value-free. In fact, values are inevitably involved in the study of human societies. Instead of being removed, they were buried into the foundations. In economics, “rational” behavior was defined to be the pursuit of pleasure, without any explicit recognition or acknowledgement of the value judgment involved. Similarly, the scarcity foundations of modern economics also conceal many value judgements. In particular, secular morality at the heart of economics makes pursuit of pleasure and profits the goal of life for all rational human beings. Once we recognize the secular moral principles on which modern economics is built, the path to creating an Islamic alternative becomes c...
First generation Islamic Economics promised to create a system with just and equitable economic o... more First generation Islamic Economics promised to create a system with just and equitable economic outcomes, which would be far superior to capitalism and communism. Historical circumstances led the second generation to forget this promise, and to consider Islamic Economics as a minor variant of capitalism. The second generation has been trying to create a Sharia compliant system, where the form is Islamic but the spirit is capitalistic. We need to go back to the roots, and building a genuine Islamic system in form and spirit which is Sharia based, rather than Sharia compliant. By doing this, the third generation can revive the promise of Islamic Economics and create a model economic system which fulfills the promise of the first generation.
Allah is the Light of the Heavens and the Earth. May Allah guide us all to His Light, and protect... more Allah is the Light of the Heavens and the Earth. May Allah guide us all to His Light, and protect us from error, and the deceptions of Shaitan and the idle desires of the Nafs. We human beings have been given very little knowledge, and cannot acquire even partial understanding of any subject except if Allah T’aala chooses it for us. May Allah open our hearts, join us on the straight path of Guidance, illuminate our understanding, and grant us the words which clearly express His will.
Journal of King Abdul Aziz University: Islamic Economics, 2021
Economics, as a distinct discipline started out as a branch of moral philosophy. Early in the 20 ... more Economics, as a distinct discipline started out as a branch of moral philosophy. Early in the 20 th century, logical positivists argued that science is the only source of knowledge, and values are not part of science. The desire to make humanities 'scientific' led to the creation of the 'social sciences', which claimed to be objective and value-free. In fact, values are inevitably involved in the study of human societies. Hence, when the social scientists could not remove them, they buried them into the foundations. In economics, 'rational' behavior was defined to be the pursuit of pleasure, without any explicit recognition or acknowledgement of the value judgment involved. Similarly, the scarcity foundations of modern economics also conceal many value judgements. In particular, secular morality at the heart of economics makes pursuit of pleasure and profits the goal of life for all rational human beings. Once we recognize the secular moral principles on which modern economics is built, the path to creating an Islamic alternative becomes clear. An Islamic society is built on the foundations of cooperation, generosity, and social responsibility, in stark contrast to the competition, greed, and individualism which are the basis of capitalist societies. Islam has a well-developed moral philosophy to deal with economic affairs, embodied in the science of fiqh (jurisprudence) as it has developed over the centuries. By rejecting the secular morality built into the foundations of modern economics, we can create a radical alternative based on the moral foundations of Islam. The modern world offers many new challenges; environments radically different from those faced by our elders. Thus, building a revolutionary Islamic economics requires ijtihad (diligent and creative research) to use the well-developed methodology of fiqh creatively to find new solutions to the deep and complex problems currently facing humanity and the planet.
The perils of private bank creation of money using the fractional reserve system were discovered ... more The perils of private bank creation of money using the fractional reserve system were discovered by many economists in the aftermath of the Great Depression. They formulated the “Chicago Plan” for 100% reserve banking which would give the state exclusive power to create money. Strict regulations on banking obviated the need for the Chicago Plan for fifty years. Financial de-regulation in the 1980’s led to the re-discovery of the same set of problems following the Global Financial Crisis of 2008. As a result, the Iceland government has formulated an updated version of the Chicago Plan, centering on state created Sovereign money to replace money creation by private banks. The Iceland Plan does not discuss the root cause of the problems, which is the interest based financial system. The goal of this paper is to present an extension of the Iceland plan and discuss several dimensions of coordinated changes required to bring the financial system in conformity with Islamic principles.
Afro Eurasian Studies, Vol 2, Issues 1 & 2, Spring & Fall 2013, p144-203, Sep 10, 2013
The idea that development is mainly about the accumulation of wealth commands widespread support.... more The idea that development is mainly about the accumulation of wealth commands widespread support. Dissenters have introduced other dimensions of development, but nonetheless agree on the centrality and importance of wealth. However, Islam is primarily concerned with spiritual and moral development. Teachings of Islam created an inner revolution within the companions of the prophet, which led to the creation of a new form of society with distinctive institutions and ideology. Eclipse of Islamic civilization, and the rise to global dominance of capitalist societies has led to widespread acceptance, even among Muslims, of ideas antithetical to Islam. In this article, we expose and refute one dozen widely believed myths created to support Western hegemony, and provide alternative points of view.
Invited paper for plenary session of 2nd International Conference on Islamic Humanities, Nov 16-20, 2013, Iran
The methodology of science is suitable for material substances subject to laws, but not for human... more The methodology of science is suitable for material substances subject to laws, but not for humans with free will. “Social science” was born from the misconception that application of the scientific method to human beings and societies would lead to remarkable progress. However, this approach has failed in many different ways, documented below. Islam provides us with a radically different approach to the study of human beings and societies, predicated on human freedom to choose between good and evil. This approach is delineated below.
Since the spirit of Islam is in stark and violent conflict with the spirit of Capitalism, the for... more Since the spirit of Islam is in stark and violent conflict with the spirit of Capitalism, the form taken by institutions designed to express this spirit must also be different. Capitalist financial institutions are designed to support the process of accumulation of wealth, which is at the heart of capitalist societies. Central to Islam is the spirit of service, and spending on others, which is expressed by diverse, service-oriented institutions, radically different from those dominant in capitalist societies.
Paper meant to explain the nature of modern money and banking to Ulema. Current fatwa's are based... more Paper meant to explain the nature of modern money and banking to Ulema. Current fatwa's are based on superficial understanding of these institutions. This paper presents deeper explanations not known to Ulema which would affect the Shariah rulings.
DESCRIPTION Paper meant for ULEMA in URDU explain how private banks create money. This issue has ... more DESCRIPTION Paper meant for ULEMA in URDU explain how private banks create money. This issue has not been taken into consideration in the rulings regarding the status of modern money as well as the validity of Islamic Banking.
Abstract Current economic theory is mainly concerned with the factors which affect the wealth of ... more Abstract Current economic theory is mainly concerned with the factors which affect the wealth of nations. Issues of income distribution and elimination of poverty and deprivation is secondary. The present paper invites discussion on a new paradigm: hunger and ...
Chapter in İslam İktisadını Yeniden Düşünmek , eds. Taha Eğri, Necmettin Kızılkaya, Oğuz Karasu, ktisat Yayınları, p 81-107, 2017
For original article and abstract in English, see: https://ssrn.com/abstract=3118255
ÖZET:Litera... more For original article and abstract in English, see: https://ssrn.com/abstract=3118255
ÖZET:Literatürde çok sayıda İslam Ekonomisi tanımı mevcuttur. Büyük çoğunluk, mevcut tanımları batı literatür dan alıyor ve onları İslami bir bakış açısı içerecek şekilde değiştiriyor. Bu, İslâmi İktisat'ın geleneksel bir iktisadın bir çeşidi ya da bir dalı olduğu inancına yol açmaktadır. Bir şeyin ancak Kuran ve Sünnet'e dayanması durumunda “İslami” olarak adlandırılabileceğini savunuyoruz. Bu yazıda tamamen ve doğrudan İslami fikir ve kaynaklara dayanan yeni bir tanım öneriyoruz. Bu tanımın, İslami Ekonomistler tarafından önerilen tanımların büyük çoğunluğunun yanı sıra, Batı'da mevcut olan herhangi birinden kökten farklı olduğunu gösteriyoruz. İktisat konusuna bakmak ve örgütlemek için tamamen yeni yollar yaratır. Bu yazıda, yeni tanımımızın İslami Ekonomi metodolojisinin doğrudan batı metodolojisine karşı olduğunu öne sürdüğü tezatın on boyutu tartışılmaktadır. Zaman (2012, İslam Ekonomisinde Kriz), İslami Ekonomideki mevcut krizi, bu alandaki liderler tarafından geniş çapta kabul gören bir tanımıyla anlatıyor. Geleneksel görüşler, İslam Ekonomisinin, homo islamicus'ta somutlaştırılmış İslami idealler ile homo Economicus'ta somutlaştırılmış gerçekçi görüşler arasında bir uzlaşma olması gerektiği yönündedir. Bununla birlikte, gereken uzlaşmanın niteliği ve kapsamı hakkında ciddi bir anlaşmazlık var. “İslam Ekonomisini” tanımlama konusundaki fikir birliği, ilerleme için ön koşul gibi görünüyor. Tamamen ve doğrudan İslami kaynaklardan gerekçelendirilebilecek bir tanımın, uzlaşmaya varamayacağı konusunda uzlaşmaya hükmedebileceğine inanıyorum. Ayrıca, bu tanım, başlangıçta İslami İktisat tarafından verilen vaadi yerine getirebilecek radikal biçimde yeni yaklaşımların yolunu açmaktadır. Bu (şimdi büyük ölçüde unutulmuş olan) vaadi, İslam Ekonomisinin adalet sağlayacak ve kapitalist, komünist ve sosyalist ekonomik sistemlerle ilgili baskı ve eşitsizlikleri ortadan kaldıracağı yönünde oldu.
To understand the functions of the financial institutions within a capitalist system, one must un... more To understand the functions of the financial institutions within a capitalist system, one must understand the spirit of capitalism. This paper argues that the spirit is the pursuit of wealth without any moral or social restraints. Financial institutions represent an embodiment of this spirit. Furthermore, these institutions act in concert with social and political institutions and cannot be understood except within this context. Ultimately, the unrestrained pursuit of wealth leads to the collection of wealth in the hands of a small number of the rich and powerful. Sustaining such outcomes within a democratic society requires radical changes in social values. Neither the spirit, nor the
social values associated with capitalist society are compatible with Islam. Islamic financial institutions attempt to modify the form of the institutions without affecting the spirit. Thus they end up performing the same functions as capitalist institutions and do not represent a genuine Islamic alternative.
Journal of Islamic Business and Management, Vol 3, No. 2, Dec 15, 2013
Hayek was concerned that passing laws to help the poor, even with good intentions, would lead to ... more Hayek was concerned that passing laws to help the poor, even with good intentions, would lead to state interference with free markets, and even more, freedom. This would lead to dictatorship of the state and serfdom for the people, as an UNINTENDED consequence. The essay shows that intended consequences of dismantling support programs have produced tremendous misery for the poor. States which pursued socialist policies of the type opposed by Hayek have done very well.
Journal of Islamic Economics, Banking and Finance, v. 5 n. 2, May 2009
This paper argues that Social Science in the West emerged after bloody and violent religious batt... more This paper argues that Social Science in the West emerged after bloody and violent religious battles convinced Europeans that religion was not a good basis on which to structure society. Then they sought to create economic, social and political systems on a secular basis, without any reference to religious principles. In a secular society, it was necessary to allow maximum freedom to all possible sects, and so freedom became a cherished value. This freedom was translated into all realms of human action, and resulted in principles contrary to both Christian and Islamic ethics. Thus rejection of religion is built into certain fundamental principles widely accepted in modern social science. This is built into the framework, and not recognized as such by Muslim scholars. Therefore, there is a great need of caution and care when we seek to adapt Western scholarship in social sciences for use in Islamic societies.
Muslims set out to create an ideal Islamic Economic system which would offer justice nad equality... more Muslims set out to create an ideal Islamic Economic system which would offer justice nad equality of economic opportunity. Numerous obstacles have sidetracked them in this mission, and resulted in substantial confusion about the goals of Islamic Economics. It is critical to clear up misunderstandings so as to progress towards these original ideals.
Abstract: Positivist philosophy provided the foundation for all social sciences as they were deve... more Abstract: Positivist philosophy provided the foundation for all social sciences as they were developed in the twentieth century. Now that positivism has been abandoned by philosophers, it is essential to replace methodology founded on positivist precepts. We show that the foundations of probability (both Bayesian and Frequentist) are wedded to positivist assumptions, which have been shown not to be workable.
Abstract: The systematic risk of IPO's in the thinly traded Istanbul Stock Exchange (ISE) are est... more Abstract: The systematic risk of IPO's in the thinly traded Istanbul Stock Exchange (ISE) are estimated using Empirical Bayes Estimators (EBE). The sectors that the firms belong to, provide the priors. Comparisons are made with OLS estimators across different estimation and forecasting periods. Two benchmark criteria are used; sum of squared residuals and sum of absolute residuals. The application requires some complicated manipulation of the theory where some inferiors of the ordinary Bayesian approach are avoided.
Consider a random variable X uniformly distributed on the unit interval [0,I]. For any xe [0,1], ... more Consider a random variable X uniformly distributed on the unit interval [0,I]. For any xe [0,1], the probability the X=x is zero, and yet one of these events must occur. This appears to preclude interpretation of an event of probability zero as an impossible event. Several authors of elementary probability texts comment on this puzzling situation. Levi (1980) argues from this that events of probability zero may nonetheless be 'seriously possible'.
We study the test for location parameter of a random number from Cauchy density, focusing on poin... more We study the test for location parameter of a random number from Cauchy density, focusing on point optimal tests. We develop analytical technique to compute critical values and power curve of a point optimal test. We study the power properties of various point optimal tests. The problem turned out to be different in its nature, in that, the critical value of a test determines the power properties of test.
A test is said to detect an alternative hypothesis if it is unbiased against it, at all levels an... more A test is said to detect an alternative hypothesis if it is unbiased against it, at all levels and all sample sizes. It is a robust test if this property is true for a large class of null distributions. This approach allows for method of comparison of tests which can be carried out for finite samples as well as in asymptotic behavior. We use this method to compare the properties of several methods of testing for heteroskedasticity, emphasizing on the possibility of testing for nonspecific heteroskedasticity. We show that a robust test for non-specific ...
Journal of Economic and Social Research, Dec 22, 2008
The Breusch-Pagan Lagrange Multiplier test for heteroskedascity is supposedly able to detect hete... more The Breusch-Pagan Lagrange Multiplier test for heteroskedascity is supposedly able to detect heteroskedasticity which is an arbitrary function of some set of regressors. We will show that in fact it detects only linear functions. The test is inconsistent for general alternatives, in ...
Publication View. 5974583. The single period control problem in econometrics / (1978). Zaman, Asa... more Publication View. 5974583. The single period control problem in econometrics / (1978). Zaman, Asad. Abstract. Thesis (Ph. D.)--Dept. of Economics, Stanford University.. Bibliography: leaves 106-107. Publication details. Download, http://worldcat.org/oclc/38693445. ...
Abstract: We suggest a procedure for model update, based on detection of structural breaks at unk... more Abstract: We suggest a procedure for model update, based on detection of structural breaks at unknown change-points. The procedure makes use of the SupF test introduced by Andrews (1993). We apply this procedure for modelling the common stock index returns in ...
California Institute of Technology, Division of the Humanities and Social Sciences Working Papers, 1981
If you experience problems downloading a file, check if you have the proper application to view i... more If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large. ... Paper provided by California Institute of Technology, Division of the Humanities and Social Sciences in its series Working Papers with number 390. ... No references listed on IDEAS You can help add them by filling out this form. ... Did you know? RePEc ...
Articles of International Econometric Review (IER), 2011
If you experience problems downloading a file, check if you have the proper application to view i... more If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large. ... Article provided by Econometric Research Association in its journal International Econometric Review. ... No references listed on IDEAS You can help add them by filling out this form. ... This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS. ... If you have authored this item and are not yet ...
By Sıdıka Başçı and Asad Zaman; Predictive Residual Sum of Squares: A Comparision of Criteria for... more By Sıdıka Başçı and Asad Zaman; Predictive Residual Sum of Squares: A Comparision of Criteria for Estimating Lag Order of an Autoregressive Process.
No RePEc service, like IDEAS, charges for the use or the display of bibliographic data. ... No ab... more No RePEc service, like IDEAS, charges for the use or the display of bibliographic data. ... No abstract is available for this item. ... To our knowledge, this item is not available for download. To find whether it is available, there are three options: 1. Check below under "Related research" whether another version of this item is available online. 2. Check on the provider's web page whether it is in fact available. 3. Perform a search for a similarly titled item that would be available. ... Paper provided by Purdue University, Department of Economics in its ...
Draft submitted to Turkish Journal of Islamic Economics, 2021
Massive amounts of confusion exists regarding the definition of Islamic Economics. This has block... more Massive amounts of confusion exists regarding the definition of Islamic Economics. This has blocked progress in terms of the development of the discipline, since there is no agreement on what its proper subject matter and methodology is. This paper shows that the confusion arises because of our attempts to borrow foundational concepts and methodology from conventional capitalist economics. Modern economists advertise their discipline as a positive, objective, and factual science. However, it is actually a branch of moral philosophy, built on concealed moral foundations of competition, selfishness, individualism, and hedonism. Islamic economics cannot be built on such foundations. Realization the modern economics is the religion of secular modernity opens the pathways to construct a radical alternative. We can build the discipline of Islamic Economics on the diametrically opposite foundations of cooperation, generosity, brotherhood of mankind, and social responsibility. Instead of the methodology of Newtonian physics currently in use, we need to use the methodology of Ibn-e-Khaldun, created for studying the process of social change. With new moral foundations, and a new methodology, it is possible to rebuild Islamic Economics on new foundations. As a first step towards doing so, we examine thirty different definitions of Economics available in the literature. We show that most of them are in harmony with our conceptualization of new foundations for the discipline. Most of the remaining can be harmonized by considering them as specialized branches of the broad definition of Islamic Economics. It is hoped that achieving consensus on goals and methods for Islamic Economics will open the path to rapid progress in the field.
We show that the rationality arguments used to establish the existence of subjective probabilitie... more We show that the rationality arguments used to establish the existence of subjective probabilities depend essentially on the identification of acting-as-if-you-believe and actually believing. We show that these two ideas, the pretense of knowledge about probabilities, and actual knowledge about probabilities, can easily be distinguished outside the restricted context of choice over special types of lotteries. When making choices over Savage-type lotteries, rational agents will act as if they know their subjective probabilities for uncertain events, but they will reveal their ignorance in other decision-making contexts. This means that subjective probabilities cannot be assumed to exist, except when there is objective warrant for them.
Paper discusses the principles of Islamic education, which differ drastically from the ones we le... more Paper discusses the principles of Islamic education, which differ drastically from the ones we learn from our Western education. The starting point is the intentions for acquiring knowledge. There are good, permissible, and also forbidden intentions. The forbiddens ones of seeking popularity and fame are the most common ones currently. We must learn to differentiate between useful and useless knowledge, seeking one while avoiding the other. There is an extensive discussion of ethics and etiquette for the seeker of knowledge, as well as corresponding rules for teacher.
The myopic formulation of human development by neoclassical economics exclusively in terms of eco... more The myopic formulation of human development by neoclassical economics exclusively in terms of economic growth has resulted in a transformation through which self-interested greed-based consumption is idealized to the great detriment of both the planet and the inhabitants of this planet (not only of the current generation but also those of the future generations). The Islamic notion of human development, in contrast, emphasizes a harmonious coexistence of human beings and nature through the responsible utilization of natural resources, which are considered as God's gift to the whole of humanity (belonging to the present as well as the future generations). In this article, we articulate the failings of the modern conceptions of development and contrast that with the Islamic sustainable development vision. The Islamic conception of development is endogenously "sustainable" due to its emphasis on the responsible use of resources; moderate consumption and simple living; and empathy for the less privileged (e.g., through both optional and mandatory charity). After providing a broad framing of the Islamic sustainable development vision, we also describe briefly the tools, incentives, and guidelines that Islam offers regarding authentic sustainable development. We will also describe how Islamic guidelines provide the keys for facilitating social inclusion, environmental sustainability, and inter-generational sustainability.
We show that the dominant definitions of probability are seriously flawed. While finite frequenti... more We show that the dominant definitions of probability are seriously flawed. While finite frequentism fails to define, infinite frequentism is not operational. Similarly, the Dutch Book arguments used to establish the existence of subjective probability fail to do so. An alternative definition of probability as a metaphor is offered. It is shown that this definition resolves several puzzles regarding the interpretation of common frequentist procedures and also some puzzles regarding the philosophy of science.
(Turkish Translation of English Article -- abstract in English)
There is a huge number of defini... more (Turkish Translation of English Article -- abstract in English)
There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources. We show that this definition differs radically from any available in the West, as well as the vast majority of definitions proposed by Islamic Economists. It creates entirely new ways of looking at and organizing the subject matter of Economics. This paper discusses ten dimensions of contrast, where our new definition suggests that the methodology of Islamic Economics is directly opposed to western methodology.
Zaman (2012, Crisis In Islamic Economics) describes the current crisis in Islamic Economics, widely acknowledged by leaders in the field. Conventional views are that Islamic Economics must be a compromise between Islamic ideals embodied in homo islamicus, and realistic views embodied in homo economicus. However, there is substantial disagreement on the nature and extent of the compromise required. Consensus on defining “Islamic Economics” appears to be a pre-requisite for progress. I believe that a definition which can be justified purely and directly from Islamic sources will be able to command consensus that compromises cannot. Furthermore, this definition opens the way to radically new approaches, which can fulfill the promise initially held out by Islamic Economics. This (now largely forgotten) promise was that Islamic Economics will provide justice, and eliminate oppression and inequities associated with capitalist, communist and socialist economic systems.
Özet İslam'ın ruhunun kapitalizmin ruhuyla sert ve keskin bir uyuşmazlık içinde olmasından dolayı... more Özet İslam'ın ruhunun kapitalizmin ruhuyla sert ve keskin bir uyuşmazlık içinde olmasından dolayı, İslam'ın ruhunu ifade etmek üzere tasarlanmış kurumların almış olduğu biçimin de ayrıca farklı olması zorunludur. Kapitalist finansal kurumlar kapitalist toplumların özünde yer alan servet biriktirme sürecini desteklemek üzere tasarlanmışlardır. İslam'da esas olan, kapitalist toplumlarda baskın olanlardan radikal bir şekilde farklı çeşitli hizmet-odaklı kurumlardaki hizmet ruhu ve başkalarına infak etmektir. Abstract Since the spirit of Islam is in stark and violent conflict with the spirit of Capitalism, the form taken by institutions designed to express this spirit must also be different. Capitalist financial institutions are designed to support the process of accumulation of wealth, which is at the heart of capitalist societies. Central to Islam is the spirit of service, and spending on others, which is expressed by diverse, service-oriented institutions, radically different from those dominant in capitalist societies.
Uluslararası İslam Ekonomisi ve Finansı Araştırmaları Dergisi, 2017
The English Language Version of this paper can be found at: https://ssrn.com/abstract=2772981.
Öz... more The English Language Version of this paper can be found at: https://ssrn.com/abstract=2772981. Özet İlk kuşak İslam iktisatçıları, kapitalizm ve komünizmin ötesinde adil bir ekonomik düzen oluşturmayı umut ediyordu. Tarihsel koşullar, ikinci kuşağın bu umutları hatırdan çıkarmasına ve İslam ekonomisini kapitalizmin bir uzantısı olarak görmesine yol açtı. İkinci kuşak, şeklin İslami fakat özün kapitalist olduğu şeriata uyumlu bir sistem inşa etmeyi denedi. Şeriata uyumlu olmasından ziyade şeriat temelli yani şekilde ve özde gerçek İslami sistem kurulması için meselenin köklerine gidilmesi gerekmektedir. Üçüncü kuşak bunu yaparak, İslam ekonomisi umudunu yeniden canlandırabilir ve ilk kuşağın umut ettiği ekonomik sistem modelini oluşturabilir.
There is a conflict in the mechanism for price determination used in a Marshallian partial equili... more There is a conflict in the mechanism for price determination used in a Marshallian partial equilibrium supply and demand framework and the Walrasian general equilibrium framework. It is generally thought that partial equilibrium is a simplified approximation to the complexities of the general model. The goal of this paper is to show that there is a strong conflict between the two models-intuitions and heuristics suggested by partial equilibrium are contradicted by extensions to the general equilibrium case.
International Journal of Pluralism and Economics Education, Mar 1, 2013
Current Economics Textbooks and Economists justify a theory of consumer behavior based on utility... more Current Economics Textbooks and Economists justify a theory of consumer behavior based on utility maximization on a priori grounds. This methodology follows Lionel Robbins’ idea that economic theory is based on logical deduction from postulates which are 'simple and indisputable facts of experience.' Strong evidence has emerged from many different lines of research that these 'simple and indisputable facts of experience' are contradicted by human behavior. In this article, we summarize some of main contradictions between predictions of utility theory and actual human behavior. Efforts to resolve these contradictions continue to be made within orthodox frameworks, but it appears likely that a paradigm shift is required.
Men have many motives for their actions. One of these is greed and acquisitiveness. These charact... more Men have many motives for their actions. One of these is greed and acquisitiveness. These characteristics have been universally condemned by all religions. Nonetheless, there are occasions when the „bad‟ motives of selfishness may result in an outcome that is socially beneficial. For example, noting that there are few fish stalls in a city far from the coast, a selfish individual decides to make a profit by transporting fish from a coastal city. He makes a tidy profit, but also serves society in that the (iodine) needs of the people are now met. Under ideal conditions of ...
Krugman has popularized the experiences of the Capitol Hill Baby-sitting Cooperative (BSC) as a f... more Krugman has popularized the experiences of the Capitol Hill Baby-sitting Cooperative (BSC) as a fundamental paradigm for macroeconomic policy. Many authors who have formally analyzed the story have concluded that money must be supplied in an optimal quantity for smooth functioning of the BSC economy. We create a natural model of the BSC which has sunspot equilibria. Agents must co-ordinate their expectations to arrive at an equilibrium. Our analysis shows that many of the lessons derived from the experience of the BSC depend on a particular choice of the equilibrium. Other choices can be more efficient and lead to different lessons. In particular, money holdings act like sunspots; they matter only if all agents agree that they matter. Surprisingly, flexible prices cannot solve the problem of mismatch between supply and demand. Also equilibria with excess supply may be more efficient than outcomes where supply and demand are matched. Our model shows that there are deep lessons to be learned from the BSC economy, but they are of a rather different nature from those derived by most authors. How expectations are formed, and how agents learn about other agents strategies form a crucial part of the equilibrium. These must be part of good models, and suitable interventions must take these into account. How agents can consciously choose among multiple equilibria and learn to coordinate on a particular choice requires more attention from economists.
Real World Economic Review, Issue 61, Sep 15, 2012
The elevation of scarcity to the fundamental economic problem rests on some unstated normative as... more The elevation of scarcity to the fundamental economic problem rests on some unstated normative assumptions. These include a political commitment to private property, a methodological commitment to not inquire about taste formation, and the idea that human welfare is roughly equivalent to preference satisfaction. The problem arises because current methodology is based on certain positivist principles, and needs revision in light of subsequent collapse of positivism.
"Purpose – The purpose of this paper is to argue that corruption is inherently unmeasurable.
Mea... more "Purpose – The purpose of this paper is to argue that corruption is inherently unmeasurable.
Measures of corruption produced by different sources are highly unsatisfactory. Useful measures
may be possible for specific purposes in limited contexts. Reasons why highly unsatisfactory
measures are in use have to do with politics and power, rather than utility of these measures.
Design/methodology/approach – The paper shows that different dimensions of corruption cannot
be reduced to a single number without serious loss of information. For example the number and size
of bribes cannot be reduced to a single index. The difference between perceptions of corruption and
the reality also makes most popular indices useless.
Findings – The paper shows that commonly used measures of corruption are useless for their
ostensible purposes. Evidence is presented that they are calculated and used for political purposes. In
particular, they provide convenient excuses for the widespread failure of the structural adjustment
programs of IMF and World Bank.
Originality/value – The paper’s findings cast doubt on the vast amount of research which takes the
corruption measures as objective and factual, and attempts to find causal factors for corruption, as
well as effects of corruption on growth and other variables."
The object of this paper is to present an exposition of Efficiency Wage theory, and to test its b... more The object of this paper is to present an exposition of Efficiency Wage theory, and to test its basic assertions in the context of Pakistan. The Great Depression of 1929 showed that labour disequilibrium persists for long periods of time. One of the causes of this was rigidity of nominal wages, which was assumed without explanation by Keynes in his General Theory. Stagflation in the 1970s led to re-examination of Keynesian theories and a search for a satisfactory theoretical explanation of wage rigidity.
Abstract We study the role of reciprocity in a labor market field experiment. Recently, many expe... more Abstract We study the role of reciprocity in a labor market field experiment. Recently, many experiments have been conducted to test the extent to which cash and non-monetary gifts affect workers' productivity through social exchange. Our experiment concluded that non-monetary gifts are more effective at invoking reciprocal behavior. Despite higher preference for money, a nonmonetary incentive results in a significant increase in productivity compared to equivalent cash gift.
Abstract While the wrong Western diagnosis that lack of wealth is the source of 'scarcity'leads t... more Abstract While the wrong Western diagnosis that lack of wealth is the source of 'scarcity'leads them to pursue the wrong remedies, the Quran offers us the correct solution to the problem. Instead of striving for more wealth, the Quran teaches us to restrict our idle desires, strive to lead simple lifestyles, and to spend on others less fortunate than us. It also teaches us to be content with what we have, and not envy those who have more material wealth.
Abstract: Traditionally poverty has been understood only as 'lack of income'. However, with the p... more Abstract: Traditionally poverty has been understood only as 'lack of income'. However, with the passage of time it was realized that poverty is a complex and multidimensional phenomenon. Mahboob-ul-Haq (1973) and Sen (1975) argued that development is about enlarging human capabilities, rather than only acquisition of wealth. The purpose of this research is to argue that poverty being multidimensional in nature, cannot be properly measured by unidimensional (income or calorie based) poverty measures.
Abstract Since Robbins (1932) influential essay on the methodology of economics, scarcity has bee... more Abstract Since Robbins (1932) influential essay on the methodology of economics, scarcity has been taken as the fundamental economic problem. We will argue that this is based on a tacit assumption of primacy of property rights. We illustrate how differing ethical commitments on part of a society lead to differing formulations of the fundamental economic problem.
The twentieth century has been extremely unusual in that economic growth rates have been extraord... more The twentieth century has been extremely unusual in that economic growth rates have been extraordinarily high. At the same time, costs of this growth have also been extremely high. These have been in the form of environmental degradation, depletion of planetary resources and species, climate change, and adverse social change. Since many of the effects of growth go outside the marketplace, evaluating costs and benefits involves value judgments of types which economists are not well-equipped to make. This article sketches some issues which have not received sufficient attention in the discourse about current policy options which bear importantly on our future.
ABSTRACT Despite many failures of the invisible hand both empirically and theoretically, it conti... more ABSTRACT Despite many failures of the invisible hand both empirically and theoretically, it continues to be vigorously asserted and widely believed. We document the failures and explain why it continues to be asserted despite these failures.
: Polanyi’s book on The Great Transformation provides an analysis of the emergence and significan... more : Polanyi’s book on The Great Transformation provides an analysis of the emergence and significance of capitalist economic structures which differs radically from those currently universally taught in economic textbooks. This analysis is based on a methodological approach which is also radically different from existing methodologies for doing economics, and more generally social science. This methodology is used by Polanyi without explicit articulation. Our goal in this article is to articulate the methodology used in this book to bring out the several dimensions on which it differs from current approaches to social science. Among the key differences, Polanyi provides substantial scope for human agency and capabilities to change the course of history. He also shows that the social, political and economic spheres of human existence are deeply interlinked and cannot be analyzed in isolation, as current approaches assume.
This paper discusses many philosophies, starting with Malthus, which blame poverty on the poor, a... more This paper discusses many philosophies, starting with Malthus, which blame poverty on the poor, and gind solutions which harm the power. The errors in these theories, and their basis in the political interests of the rich and powerful are also discussed.
Lahore Journal of Policy Studies vol 4. no. 1, Oct 11, 2011
It is widely believed that human knowledge represents valuable information about the world we liv... more It is widely believed that human knowledge represents valuable information about the world we live in. Historical studies of Michel Foucault led to the striking conclusion that human knowledge cannot be separated from the power configurations governing society. In this paper, we study how economic theories are shaped by socio-political power.
How do we arrest the decline of the social sciences in Pakistan? Is it a matter of money or one o... more How do we arrest the decline of the social sciences in Pakistan? Is it a matter of money or one of sending more students to the West who might then return to teaching at the local universities? In this article I argue that the solution lies elsewhere. Borrowing frames, concepts, and analytical techniques based on the concept of universalism runs a serious risk of imposing alien views on local problems. Moreover, attempts to become 'scientific'requires side stepping value judgments of good and bad.
"Abstract: The core economic functions of production and distribution of goods can be handled by ... more "Abstract: The core economic functions of production and distribution of goods can be handled by many different methods. After the fall of communism, the market mechanism has become nearly universal. Conventional economic theories argue that this is natural, because it is the best and the most efficient method for organizing economic affairs in a society. This paper, based on the analysis of Polanyi (1944) and Klein (2008) argues that the opposite is true. Market mechanisms conflict with natural mechanisms for production and exchange in traditional societies. Unregulated markets cause tremendous damage, as can be witnessed today in terms of countless economic crises, wars, environmental destruction, as well as damage to social networks. Because of this damage, market societies can only be maintained
by force, as well as disinformation. To resolve crises on myriad fronts caused by the unregulated market, it is the need of the hour to find viable alternatives."
to appear in International Journal for Pluralism in Economics Education, Sep 1, 2015
Our goal is to show that production of knowledge requires different approaches in different areas... more Our goal is to show that production of knowledge requires different approaches in different areas. In particular, radically different methodologies are suitable for mathematics, science, and humanities. Mathematics requires an axiomatic and deductive approach, while science requires an inductive and empirical approach. Historical events in Europe led to a conflict between science and religion, and a consequent attempt to use science to replace religion. The attempt to prove that science leads to certainty led to the mistaken understanding that scientific methodology is mathematical. The assumption that science is the only valid body of knowledge led to the mistaken attempt to apply this wrong understanding of scientific methodology to the social sciences. These two mistakes have crippled the development of our understanding of human beings and societies. The failure to understand the basic realities of human experience has led to many disasters, and needs to be rectified by correcting this double mistake.
Models are representations of reality. They simplify and ignore many complexities in order to foc... more Models are representations of reality. They simplify and ignore many complexities in order to focus on certain aspects. With constant and repeated use, theorists sometimes confuse the model with reality. This leads to many types of errors. In this article, we argue that the metaphor of the invisible hand has become deeply entrenched in the ways of thinking about and framing of economic problems. This has led to overuse and abuse of the metaphor. Why this happened, what harm has resulted from it, and how it can be remedied is the subject of this paper.
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estimate for a regression model. The validity of the usual variance estimate depends on
some assumptions, most critically the validity of the model being estimated. This is often
violated in model selection contexts, where model search takes place over invalid models.
A cross validated variance estimate is more robust to specification errors (see, for
example, Efron, 1983). We consider the effects of replacing the usual variance estimate
by a cross validated variance estimate, namely, the Prediction Sum of Squares (PRESS) in
the functions of several model selection criteria. Such replacements improve the
probability of finding the true model, at least in large samples.
estimate for a regression model. The validity of the usual variance estimate depends on
some assumptions, most critically the validity of the model being estimated. This is often
violated in model selection contexts, where model search takes place over invalid models.
A cross validated variance estimate is more robust to specification errors (see, for
example, Efron, 1983). We consider the effects of replacing the usual variance estimate
by a cross validated variance estimate, namely, the Prediction Sum of Squares (PRESS) in
the functions of several model selection criteria. Such replacements improve the
probability of finding the true model, at least in large samples.
ÖZET:Literatürde çok sayıda İslam Ekonomisi tanımı mevcuttur. Büyük çoğunluk, mevcut tanımları batı literatür dan alıyor ve onları İslami bir bakış açısı içerecek şekilde değiştiriyor. Bu, İslâmi İktisat'ın geleneksel bir iktisadın bir çeşidi ya da bir dalı olduğu inancına yol açmaktadır. Bir şeyin ancak Kuran ve Sünnet'e dayanması durumunda “İslami” olarak adlandırılabileceğini savunuyoruz. Bu yazıda tamamen ve doğrudan İslami fikir ve kaynaklara dayanan yeni bir tanım öneriyoruz. Bu tanımın, İslami Ekonomistler tarafından önerilen tanımların büyük çoğunluğunun yanı sıra, Batı'da mevcut olan herhangi birinden kökten farklı olduğunu gösteriyoruz. İktisat konusuna bakmak ve örgütlemek için tamamen yeni yollar yaratır. Bu yazıda, yeni tanımımızın İslami Ekonomi metodolojisinin doğrudan batı metodolojisine karşı olduğunu öne sürdüğü tezatın on boyutu tartışılmaktadır.
Zaman (2012, İslam Ekonomisinde Kriz), İslami Ekonomideki mevcut krizi, bu alandaki liderler tarafından geniş çapta kabul gören bir tanımıyla anlatıyor. Geleneksel görüşler, İslam Ekonomisinin, homo islamicus'ta somutlaştırılmış İslami idealler ile homo Economicus'ta somutlaştırılmış gerçekçi görüşler arasında bir uzlaşma olması gerektiği yönündedir. Bununla birlikte, gereken uzlaşmanın niteliği ve kapsamı hakkında ciddi bir anlaşmazlık var. “İslam Ekonomisini” tanımlama konusundaki fikir birliği, ilerleme için ön koşul gibi görünüyor. Tamamen ve doğrudan İslami kaynaklardan gerekçelendirilebilecek bir tanımın, uzlaşmaya varamayacağı konusunda uzlaşmaya hükmedebileceğine inanıyorum. Ayrıca, bu tanım, başlangıçta İslami İktisat tarafından verilen vaadi yerine getirebilecek radikal biçimde yeni yaklaşımların yolunu açmaktadır. Bu (şimdi büyük ölçüde unutulmuş olan) vaadi, İslam Ekonomisinin adalet sağlayacak ve kapitalist, komünist ve sosyalist ekonomik sistemlerle ilgili baskı ve eşitsizlikleri ortadan kaldıracağı yönünde oldu.
social values associated with capitalist society are compatible with Islam. Islamic financial institutions attempt to modify the form of the institutions without affecting the spirit. Thus they end up performing the same functions as capitalist institutions and do not represent a genuine Islamic alternative.
There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources. We show that this definition differs radically from any available in the West, as well as the vast majority of definitions proposed by Islamic Economists. It creates entirely new ways of looking at and organizing the subject matter of Economics. This paper discusses ten dimensions of contrast, where our new definition suggests that the methodology of Islamic Economics is directly opposed to western methodology.
Zaman (2012, Crisis In Islamic Economics) describes the current crisis in Islamic Economics, widely acknowledged by leaders in the field. Conventional views are that Islamic Economics must be a compromise between Islamic ideals embodied in homo islamicus, and realistic views embodied in homo economicus. However, there is substantial disagreement on the nature and extent of the compromise required. Consensus on defining “Islamic Economics” appears to be a pre-requisite for progress. I believe that a definition which can be justified purely and directly from Islamic sources will be able to command consensus that compromises cannot. Furthermore, this definition opens the way to radically new approaches, which can fulfill the promise initially held out by Islamic Economics. This (now largely forgotten) promise was that Islamic Economics will provide justice, and eliminate oppression and inequities associated with capitalist, communist and socialist economic systems.
Özet İlk kuşak İslam iktisatçıları, kapitalizm ve komünizmin ötesinde adil bir ekonomik düzen oluşturmayı umut ediyordu. Tarihsel koşullar, ikinci kuşağın bu umutları hatırdan çıkarmasına ve İslam ekonomisini kapitalizmin bir uzantısı olarak görmesine yol açtı. İkinci kuşak, şeklin İslami fakat özün kapitalist olduğu şeriata uyumlu bir sistem inşa etmeyi denedi. Şeriata uyumlu olmasından ziyade şeriat temelli yani şekilde ve özde gerçek İslami sistem kurulması için meselenin köklerine gidilmesi gerekmektedir. Üçüncü kuşak bunu yaparak, İslam ekonomisi umudunu yeniden canlandırabilir ve ilk kuşağın umut ettiği ekonomik sistem modelini oluşturabilir.
Measures of corruption produced by different sources are highly unsatisfactory. Useful measures
may be possible for specific purposes in limited contexts. Reasons why highly unsatisfactory
measures are in use have to do with politics and power, rather than utility of these measures.
Design/methodology/approach – The paper shows that different dimensions of corruption cannot
be reduced to a single number without serious loss of information. For example the number and size
of bribes cannot be reduced to a single index. The difference between perceptions of corruption and
the reality also makes most popular indices useless.
Findings – The paper shows that commonly used measures of corruption are useless for their
ostensible purposes. Evidence is presented that they are calculated and used for political purposes. In
particular, they provide convenient excuses for the widespread failure of the structural adjustment
programs of IMF and World Bank.
Originality/value – The paper’s findings cast doubt on the vast amount of research which takes the
corruption measures as objective and factual, and attempts to find causal factors for corruption, as
well as effects of corruption on growth and other variables."
by force, as well as disinformation. To resolve crises on myriad fronts caused by the unregulated market, it is the need of the hour to find viable alternatives."