UNIVERSITI UTARA MALAYSIA KUALA

LUMPUR
BPMS 6013: THEORY AND PHILOSOPHY OF
MUAMALAT
SEMESTER SEP 2013
INDIVIDUAL ASSIGNMENT 2
ARTICLE SUMMARY
REDEFINING ISLAMIC ECONOMICS AS A
NEW ECONOMIC PARADIGM
PREPARED BY:
MENAGA A/P DOKKANDAN - 11!!!
PREPARED FOR:
ASSOC PROF" DR" MUHAMMAD NASRI BIN MD
HUSSAIN
SUBMISSION DATE: 16

NOV 2013
1
TABLE OF CONTENTS
CHAPTER CONTENTS PAGE
NUMBER
1.0
INTRODUCTION
1
2.0
RESEARCH FINDINGS
2-9
2.1 Crises of Capitalism and Need for New Economic Paradigm
2.2 The Enlightenment Project
2.3 Capitalism as Economic Pillar of the Enlightenment Project
2.4 The Islamic Worldiew
2.! Epistemological Perspectie
2." #nthropological Perspectie
2.$ Teleological Perspectie
2.% &edefining Islamic Economics
2
3-4
5
6
6
7
8
9
3.0 CONCLUSION 10
REFERENCE 10
2
CHAPTER 1 INTRODUCTION
#'thor Necati #(din cond'cted st'd( on )R!"!#$%$%& I'()*$+ E+,%,*$+' )' ) N!-
E+,%,*$+ P).)"$&** was p'+lished +( Islamic Economic ,t'dies -ol. 21. No. 1. /'ne 2013
112343.
In this article. a'thor enlightened that more recent literat're on Islamic economics is
largel( a+o't Islamic financial instr'ments and instit'tions. It might gie an impression as if
the main difference +etween conentional and Islamic economics is in the instr'ments. rather
than fo'ndational aspect. Islamic economics is not a+o't the prohi+ition of certain goods and
serices. It is a astl( different economic s(stem whose answers to the core economic
4'estions ar( significantl(. It is important to start from the fo'ndation Islamic economics +(
redefining ass'mptions. deeloping new theories of microeconomics and macroeconomics.
and offering testa+le models from the Islamic paradigm.
1.1 P/.0,'! ,# T1$' S2/"3
This paper is an attempt to redefine Islamic economics as a new economic paradigm
+ased on the distinctie a5iomatic feat're of Islamic worldiew. In order to do that. the paper
first presents eidences of the crises of capitalism and search for alternatie paradigm.
,econd. it o'tlines the origin of capitalism within the Western sec'lar worldiew. Third. it
presents the Islamic worldiew from anthropological. epistemological. and teleological
perspecties. 6o'rth. it redefines Islamic economics as alternatie economic paradigm to
capitalism.
3
CHAPTER 2 RESEARCH FINDINGS
2.1 C.$'!' ,# C)0$2)($'* )%" N!!" #,. N!- E+,%,*$+ P).)"$&*
With the fall of socialist regimes at the end of last cent'r(. the free mar7et capitalism.
which started in E'rope a few cent'ries ago. has +ecome the dominant s(stem across the
world. 8'ring and after the 200% financial crisis. man( people +egan to raise 4'estions a+o't
the fate of capitalism. Een tho'gh it was not the first crisis of capitalism. it was the +iggest
one since the 9reat 8epression. Three (ears later. we are still str'ggling to recoer the crisis.
Indeed. with the on2going de+t crisis in E'rope. we might see another glo+al financial
meltdown sha7ing the fo'ndation of capitalism.
The a'thor stated that the (ear 200% financial crisis and the c'rrent de+t crisis d'e to
the inisi+le hand witho't moral compass co'ld t'rn to a )stealing hand the greatest theft in
the histor( of man7ind*. It was not seen as a theft perhaps +eca'se of the inisi+ilit( of the
hand inoled.
It was Easterlin 11:$43 who first came 'p with some 4'antitatie signs of happiness
crisis in capitalism. #ccording to Easterlin st'd( in /apan and China een tho'gh great
increase in real income per capita. there was not significant change in s'+ject well2+eing and
life satisfaction. &ather. the percentage of people who sa( the( are dissatisfied has increased.
and the percentage who sa(s the( are satisfied has decreased 1;ahneman. ;r'eger 200"3.
8espite some eidence of its fail're in proiding happiness 1<ane 2000. =amilton.
8enniss 200". ;asser 2002. 8iener. ,'h > ?ishi 1::$. Easter+roo7 20033. the glo+ali@ation
of cons'mer c'lt're and materialistic al'es is rapidl( displacing traditional al'es. Indeed.
those 4'estiona+le new al'es are spreading all oer the world. The( hae t'rned a h'man
+eing into a cons'mption machine. A't not onl( does a cons'mer c'lt're fail to +ring
happiness. it also fails to protect the enironment. It has prod'ced man( enironmental
pro+lems. incl'ding 'nchec7ed growth in the prod'ction of solid waste and in greenho'se gas
emissions. Therefore. it is not s'staina+le in the long r'n 1#(din 2010+3. It is not j'st
4
weapons of mass destr'ctionB it is also the prod'cts of mass cons'mption that are threatening
the f't're of all liing +eings on this planet. Indeed. while the former threatens the o'ter
'nierse. the latter threatens the inner 'nierse. With more and more cons'mption. people are
no more. and sometimes een less. happ(. This is neither desira+le nor s'staina+le. In
Comm'nism which emerged as the anti2thesis of capitalism failed to +e an alternatie
d'e to its mis'nderstanding of h'man nat're. It wrongl( associated the pro+lems of
capitalism to )priate ownership* and esta+lished its fo'ndations on )collectie ownership*
which 7illed the indiid'al incentie.
Islamic 1moral3 economics co'ld attract great attention if it co'ld go +e(ond the
e5isting frame of conentional economics. 6or that matter. if Islamic economics wo'ld offer
an alternatie paradigm. it has to contradict with the e5isting ones. It has to offer new
)concept'al and instr'mental techni4'es*.
2.2 T1! E%($&12!%*!%2 P.,4!+2
The a'thor e5amines the Enlightenment in order to 'nderstand capitalism as a
materialist economic s(stem. The Enlightenment was a project to release h'man minds from
the chains of ch'rches in the 8ar7 #ges. In his famo's essa( titled as CWhat is
EnlightenmentDC Imman'el ;ant 11::"3 descri+ed the Enlightenment simpl( as freedom to
'se oneEs own intelligence. The Enlightenment thin7ers +eliee that h'mans are generall(
good and perfectl( rational. The thin7ers 'ltimatel( s'cceeded to gain freedom for h'man
minds. Their ictor( helped to remoe the dar7ness in the E'rope and replaced with the light
of h'man minds. The( e5panded their wars against all religions ass'ming that the( are no
different than Christianit( in the 8ar7 #ges.
It consists of ca'sation. nat're. and chance. The Enlightenment thin7ers offer
deterministic ca'se2effect chains. Fother Nat're. and chance as the determining forces
+ehind the realit( of the 'nierse. ,econd. the Enlightenment was a project of tr'th see7ing
witho't reelation. 6or the Enlightenment thin7ers h'man minds were the onl( so'rce of
7nowledge. No need to see7 g'idance from diinel( g'ided indiid'als +eca'se in realit(
there is no eidence for an( 8iine Aeing. Third. since 9od was dead. there wo'ld +e no
5
need for moralit( +ased on reelation. =oweer. as strongl( artic'lated +( ;ant. een witho't
9od. it is still possi+le to reach moral principles thro'gh reasoning 1&eath. Timmermann
20103. Th's. the Enlightenment is a project of moralit( witho't 9od. 6o'rth. since 9od is
dead. no need to aim for paradise in the hereafter. We are left with no option. +'t esta+lishing
a worldl( paradise. In this regard. li+eral capitalist economic s(stem has +een seen a great
tool to accomplish s'ch a goal. 6inall(. the Enlightenment is a project of alienation and
animali@ation +eca'se as arg'ed +( ;arl Far5 capitalism alienates h'mans and treats him a
sort of ro+ot or thin7ing animal.
Chart21
The Pillar of Enlightenment
The Enlightenment project also redefined the p'rpose and meaning of life for
indiid'als. It as7ed indiid'als to act free from the restrictions of ch'rches and do whateer
the( consider is to +e +est for their interests. The main p'rpose is not to please 9od an(moreB
rather. it pleases the desires of animal so'ls. The Enlightenment thin7ers reject the idea of
+eing serant to 9od. Instead. the( t'rn h'mans into the masters of the 'nierse. The 'ltimate
p'rpose is to gain control oer nat're. rather than liing with her in harmon(. The meas're
for moralit( is not the 8iine reelation an(more. It is internal compass of pain and pleas're
or p're reason. Indeed. Aentham s'ggests that 'tilit( calc'lation sho'ld +e (ardstic7 for
eer(thing incl'ding what is good and what is +ad 1Aentham 200$. p.143.
The )Enlightenment* project is design instead of +elieing in god1s3. It t'rns the
h'man )self* to a 7ind of )inner god*. It promotes )self2+elief*. )self2help*. )self2
act'ali@ation*. )self2motiation*. )self2confidence* and )self2s'fficienc(.*
6
2.3 C)0$2)($'* )' E+,%,*$+ P$((). ,# 21! E%($&12!%*!%2 P.,4!+2
The Enlightenment project relies on capitalist ideolog( to create earthl( paradise.
Capitalism p'rs'es this goal thro'gh mar7et mechanism. =oweer. capitalism is not the
mar7et mechanism. It is a worldiew that relies on the mar7et mechanism. Capitalism is
m'ch more than a free mar7et s(stem. It is an ideolog( that ma7es mone( 1capital3 the central
p'rpose of life for all indiid'als. In ;arl Far5Gs terms. )Fone( degradesHand t'rns the
mall into the commodities. Fone( is the 'niersal self2esta+lished al'e of all things. It has.
therefore. ro++ed the whole world 22 +oth the world of men and nat're 22 of its specific al'e.
Fone( is the estranged essence of manEs wor7 and manEs e5istence. and this alien essence
dominates him. 1Far5. and <edererhe 1:!%3 worship. In this sense. the main goal of a
capitalist person is to acc'm'lateIgain mone( wealth. 6or s'ch a person. mone( is considered
as a god that can open an( door. In Far5ist terms. capitalism is an ideolog(. which has t'rned
mone( into the god of the world.
Capitalism relies on the magical power of the free mar7et mechanism to f'lfil its
promise of earthl( paradise. The fathers of free mar7et capitalism were strongl( infl'enced
+( the Enlightenment thin7ers. Indeed. the laisse@2faire capitalism aims the freedom of
mar7et from an( goernment interention. If self2interested indiid'als are allowed to ma7e
their own decisions. the( will do whateer is +est for them. The mar7et mechanism
determines what and how m'ch to prod'ce if we simpl( let interest eer(.
,ince societ( is nothing other than the collection of indiid'als. oerall what is good
for each indiid'al is also good for societ(. In other words. #dam ,mith ass'mes no
dichotom( +etween priate and social interests. Therefore. he s'ggests that the inisi+le hand
drien +( s'ppl( and demand alone sho'ld decide on prod'ction and distri+'tion of goods
and serices. There is er( limited. if an(. role for the goernment hand to get inoled in
this process. While #dam ,mith esta+lishes his theor( of s'ppl( and demand on self2
interested h'man nat're. Aentham shapes his 'tilit( theor( on pleas're see7ing and pain
aoiding h'man nat're.
7
2.4 T1! I'()*$+ 5,.("6$!-
Islamic worldiew which is +ased on the J'rGn. =adiths. and iews of F'slim
scholars. Islam is not a marginal religion dealing with dealing spirit'al life alone. It is a
religion proiding g'idance and well2+eing for +oth this life and the hereafter. Therefore. the
word falKh 1real well2+eing3 and its deriaties hae +een 'sed in the J'rGn man( times. It is
important to recogni@e the oerlapping goals +etween the worldiews of major religions.
Islam is not a completel( new religion. It is considered to +e the last chain of #+rahamic
religions. Therefore. it is not s'rprising to see that Christianit( and /'daism hae man( al'es
in common with Islam. =oweer. the enlightenment moement in E'rope deiated from
these al'es and em+raced sec'lar. al'e2ne'tral. materialist worldiew 1#(din 200!3.
2.5 E0$'2!*,(,&$+)( P!.'0!+2$6!
?neness of the 8iine laws 1Taw d3. the ca'sal 'nderstanding of 'nification of
7nowledge in world2s(stems +( the epistemological methodolog( em+edded in ontolog( and
ontic learning domains.1Cho'dh'r(* 200$+. p.$"3 =e strongl( critici@es the c'rrent efforts in
Islamic economics d'e to its lac7 of epistemological fo'ndation and re4'ired data. =e arg'es
that the e5isting literat're on Islamic economics has +ecome trapped in the neoclassical
framewor7 which is +ased on sec'lar western epistemolog(. Therefore. according to
Cho'dh'r(. Islamic economics sho'ld foc's on endogeni@ing preferences and tastes thro'gh
interactie learning.
The Islamic worldiew shares this 1;'hnian3 attri+'te of scientific reol'tion.
Witho't f'ndamental inocation. there cannot +e a s'+stantie theor( and premise for Islamic
economics and finance. and there+(. the constr'ction of the Islamic worldiew and world2
s(stem 1Cho'dh'r(.* 200$+. pp.$"2$$3. While the materialist worldiew relies on the light of
h'man mind alone. the Islamic worldiew relies on +oth reason and reelation. Islam does
not as7 people to sh't down their minds and +lindl( follow the 8iine message.
8
6rom an Islamic point of iew. it can +e said that 9od ma7es =imself 7nown to
h'manit( thro'gh =is words and wor7s. If we listen to the 8iine &eelations and read =is
wor7s in the 'nierse. we will 7now =is attri+'tes. We sho'ld +egin o'r reading from
o'rseles +eca'se the 7nowledge of the self will help 's to 7now 9od. ?nce we 'nderstand
that we are a+sol'tel( impotent and need(. we will reali@e that nat're co'ld not prod'ce
an(thing on her own. Eer(thing from an atom to galactic s(stems is the wor7s of 9od and
'nder =is control at eer( moment. =e is not the god of gaps. =e is the 9od of eer(thing at
eer( moment according to the J'rGn. Th's. the oneness of 9od 1Tawhid3 +ecomes the
so'rce of ontological2epistemological 7nowledge in the Islamic worldiew. In other words.
the Tawhidi paradigm proides the 'nit( +etween ontological and epistemological leel of
realit(.
Therefore. there is no dichotom( +etween the reealed 7nowledge and reasoned
7nowledge. While the former comes from the 8iine Words 1#l2;alaam3. the latter comes
from the 8iine Power 1#l2;'drah3. The( are j'st the different e5pressions of the same
realit( which comes from the ?ne 1#l2#had and #l2Waheed3. 8'e to the 'nit( of 7nowledge
in the Islamic worldiew. no contradiction is e5pected +etween gen'ine scientific and
religio's tr'th.
2.6 A%21.,0,(,&$+)( P!.'0!+2$6!
6rom the Islamic perspectie. 7nowing self is er( more important. #s the Prophet
who sa(s. )he 7nows himself 7nows his <ord.* In other words. 7nowing self is the 7e( to
7now 9od. =oweer. as 9a@hali points o't. 7nowing self is not an eas( jo+. ='man nat're is
composed of comple5 characteristics. It contains animal character in terms of eating.
drin7ing. sleeping. and reprod'cing. It contains +east character li7e harming others for his
+enefits. It contains ,atanic and angelic characters. Each of these potential characters is
deeloped thro'gh certain n'tritionL )Each one of these 4'alities s'stains and promotes
itGsotion of goodness growth. and the res approed 19ha@ali+ehaior2001.p.23. In other
words. h'man cone(s propensit( to +ecome animal. ,atan. and angel. #nimal are two 7inds.
good and +ad ones. If a person onl( p'rs'es animal desires. he wo'ld +e li7e a good animal.
If he p'rs'es his interests at the cost of others. he will +ecome li7e +east. The goal is to
+ecome li7e angels )to +ehold the glor( of #l pleas'res and arrogant anger on (o'r
9
19ha@alifellow2001.p.43 Eer( person has a potential to +ecome li7e animal. +east. ,atan. or
angel.
Inspired largel( +( the writings of some F'slim scholars s'ch as #l29ha@ali and
N'rsi. the a'thor recentl( deeloped a new the ='man Nat're 19T=N3*. 'sing the palace
1#(din 2012a3. If we compare the h'man +od( to a l'5'r( recreational ehicle 1&-3. the
following elements of h'man nat're wo'ld +e the companions on this ehicleL ;ing. /'dge.
Wa@ir. Elephant. ,howman. 8og. and. 8rier. The ;ing is the spirit'al heart that is the so'rce
of loe and inspirational 7nowledge. The /'dge is the conscience that is the so'rce things*
and negatie feelings e5perience Wa@ir 1prime minister3 is the mind. The Elephant is the
animal spirit. which is the so'rce of animalistic desires. The ,howman is the self2centric ego
that p'rs'es power and possession to show its importance to others. The 8og is an inner drie
for protection of personal +elongings with potential to oppress others for their possessions.
The 8rier is the deciding self 1free will3 that dries that the ehicle 'nder the infl'ence of
the residents.
2.7 T!(!,(,&$+)( P!.'0!+2$6!
6rom the Islamic point of iew. as eer(thing in the 'nierse is created for certain
p'rposes. h'man +eing is also created for certain p'rposes. The main p'rpose of h'man is not
to +oost the self. t'rning him to an inner god. The p'rpose is also not to sere the elephant. as
+ecoming his slae. &ather. the p'rpose is to 'nderstand o'r nat're em+edded with infinite
impotence and poert(. and act accordingl(. It is to disclose o'r almost infinite potential +(
rel(ing on the 8iine power and merc( thro'gh 'nderstanding o'r tr'e nat're. In other
words. the p'rpose is to e5cel spirit'all(. insan-i kamil 1perfect h'man3 +( disclosing o'r
h'man potentialit( as m'ch as we can.
2.8 R!"!#$%$%& I'()*$+ E+,%,*$+'
Islamic economics has +een a 7e( s'+ject matter among dierse pool of F'slim
scholars s'ch as commentators of the J'rGn. j'rists. historians. and social. political. and
moral philosophers. In last few decades. disc'ssions on Islamic economics hae intensified.
F'slim economists hae +een disc'ssing the need for Islamic economics as a new discipline.
Een tho'gh there is a great consens's among scholars that Islamic worldiew de+ate on
Mnat'reG of and MneedG for alternatie paradigm 1I4+al. ,(edis #linot > F'ljawan settled
10
200$.p.43 (et 8espite significant progress in the disc'ssion. there is still arg'ment een on
the er( definition of Islamic economics.
Islamic s(stem with the realities of capitalist s(stem. not its ideals 1=asan 20113.
Therefore. he considers their writings +eing a sort of apple2orange comparisons. =e calls for
a step2+(2step approach to Islami@ing economics rather than comprehensie approach 1=asan
1::%3. Een tho'gh Islamic economics oerlaps with conentional economics in terms of
dealing with scarce reso'rces in order to f'lfill the needs and wants of h'man +eings. it
differs significantl( in the wa( it answers to the core economic 4'estions and define h'man
needs and well2+eing. While conentional economics which emerged within the materialist
worldiew is solel( +ased on h'man reason. Islamic economics is +ased on h'man reason
and the 8iine g'idance 1;han 1:%:3.
Islam recogni@es spirit'al. moral. and social needs of h'man +eings in addition to
material needs. In Islamic economics. h'man well2+eing is not defined from hedonic
perspectieB it is rather defined from a spirit'al. moral. and social perspectie. Een tho'gh
Islamic economics is for free mar7et in general. it does proide certain filters to aoid the
madness and 'nfairness of the mar7et. Th's. the answer to )what to prod'ce* 'nderstanding
is determine of h'man nat're and needs. not +( self2interest. ,elf2pleas're is not the final
end. it is the +(2prod'ct of 9odGs pleas're. ,ince different moral. social. and spirit'al
principles which determine the answers to the core economic 4'estions. it co'ld +e defined as
distinct economic paradigm.
The distinctie feat'res of Islamic economics come from the Islamic worldiew.
partic'larl( its ontological. epistemological. and teleological differences from the materialist
worldiew. Therefore. it is important to highlight m'lti2dimensional well2+eing goals and
morall( g'ided mar7et mechanism in definitionL )Islamic economics foresees an economic
s(stem +ased on the Islamic worldiew aiming to reali@e spirit'al. moral. intellect'al. social.
and material well2+eings of indiid'als in this life and the hereafter thro'gh allocation and
distri+'tion of scarce reso'rces in a morall( g'ided mar7et s(stem.* Th's. the answers to the
core 4'estions co'ld +e as followsL what to prod'ceD Prod'ce goods and serices which help
h'man +eings to e5cel spirit'all(. intellect'all(. morall(. and sociall(. What to prod'ceD
Prod'ce the +asic goods and serices for eer(one. +'t others for those who co'ld afford.
11
#cc'm'late spirit'al. moral. and social capital in addition to ph(sical and financial capital.
=ow to prod'ceD Prod'ce thro'gh efficient and fair mar7et mechanism.
CHAPTER 3 CONCLUSION
The paper attempts to ma7e a strong case for Islamic economics as an alternatie
paradigm to deal with the crises of capitalism. It draws the western worldiew in which free
mar7et capitalism emerged and flo'rished. Then. it redefines Islamic economics +ased on
distinctie worldiew of Islam partic'larl( from anthropological. epistemological. and
teleological perspecties.
It is important to note that despite few decade wor7s. we are still at the +eginning of a
long path to go in order to present Islamic economics as a ia+le paradigm. There are man(
tas7s ahead. 6irst. we need to go +e(ond the e5isting paradigm and create o'r own concepts
and models wheneer it is necessar(. ,econd. we need to +egin from microeconomics. #s
Nalcintas11:%". p.3%3 pointed o't oer two decades ago )constr'ction constraints might +e
the most. Third. we need e5amine the e5isting empirical and theoretical st'dies to gather
eidence for new concepts and models of Islamic economics. 6o'rth. we need cond'ct
e5perimental and empirical st'dies to gather data and test economic ass'mptions and models
from Islamic perspectie.
Fost of e5isting papers on Islamic st'dies do not offer an( scientificall( accepta+le
eidence for their arg'ments. Therefore. the( are more rhetorical. rather than scientific. The
famo's motto attri+'ted to <ord ;ein p'ts meas'rement as the (ardstic7 for scientific
7nowledgeL )When (o' can meas're what (o' are spea7ing a+o't. and e5press it in n'm+ers.
(o' 7now something a+o't itB +'t when (o' cannot meas're it. when (o' cannot e5press it in
n'm+ers. (o'r 7nowledge is of a meager and 'nsatisfactor( 7indB it ma( +e the +eginning of
7nowledge. +'t (o' hae scarcel( in (o'r tho'ghts adanced to the state of ,cience. whateer
the matter ma(. We now +ehae more meas'rement tools to gather 4'alitatie data in order to
test concepts. ass'mptions. and models from the Islamic economics.
REFERENCE
12
#(din. N. 120133. C&edefining Islamic Economics as a New Economic ParadigmC. Islamic
Economic ,t'dies. -ol. 21. No. 1. /'ne 2013 112343.
13