Reclaiming the Future: The Revolutionary Vision of Third Generation Islamic Economics

In an era where global economic crises have exposed the shortcomings of modern capitalist systems, Islamic economics offers a revolutionary alternative. This talk delves into the Third Generation of Islamic Economics (3GIE), which seeks to return to the profound teachings of the Quran and Sunnah, rejecting the compromised approaches of Second Generation Islamic Economics (2GIE). Unlike previous attempts that sought to integrate Western capitalist frameworks, 3GIE revives a radically different vision: an economy grounded in justice, morality, and social responsibility, built on divine bounty rather than scarcity.

Drawing on historical insights and contemporary critiques, this presentation will explore the epistemological and metaphysical errors inherent in Western economic thought. It will offer a glimpse into how Islamic societies, guided by love, cooperation, and a commitment to the Akhira, can create sustainable, equitable economies. The talk serves as an introduction to the forthcoming textbook on 3GIE, which aims to inspire a new generation of scholars, policymakers, and thinkers to rethink how we structure our economies and societies. Come discover how 3GIE can provide the answers to the pressing challenges of today's world, and be part of the movement to reclaim the future of economics.

1. A Textbook For Third Generation Islamic Economics (currently in process) Dr. Asad Zaman

2. First, Second, and Third Generations of IE First and Third are agreed that the Quran, Sunnah, Islamic Intellectual Tradition, and the historical experiences of Islamic societies provide us with the foundations required to build modern economic societies. Also, that Western societies – their economic, political, and social institutions – are diametrically opposed to principles upon which Islamic societies are built. Second Generation believes that we can start with Western templates for politics, economics, and society, and modify or adjust them to match Islamic ideals.

3. Critical Background Societies are built around common goals, shared perceptions of history, common ideologies – a common worldview. That is what differentiates them from a collection of individuals. Islamic societies are built on foundations of love, which unites them so that every part feels the pain of the others. This leads to cooperation, generosity, social responsibility, and striving for success in the Akhira . Capitalist Societies came into existence after rejection of Christianity. They assume man is a type of animal, and society is a jungle governed solely by the survival-of-the-fittest. This leads to competition, greed, individualism, and hedonism.

4. Epistemological Foundations for Capitalism During the period from 16 th to 18 th Century, a Great Transformation took place in European societies. Social theory based on the Bible (scholastics) was rejected and replaced by a secular social theory. Rejection of the Bible as a basis for knowledge led to an epistemological crisis: what were secure foundations for knowledge? Enlightenment thinkers came up with the idea that reason and logic could provide us with secure foundations on which to build knowledge of certain validity, equally acceptable to all religious persuasions.

5. Social Theory Social theory explains and justifies political, economic, and societal institutions of a given society. As societies evolve, social theories co-evolve, but there is often a mismatch. Social theories lag behind ever changing social structures. As European societies transitioned from Christian to Secular, social theory changed correspondingly. One of the assumptions of secular society was that it was based on reason and empirical evidence. Thus, this theory was universally applicable to all societies.

6. Global Conquest and World Domination For reasons to be discussed later, European societies colonized about 85% of the globe by the early 20 th Century. They destroyed indigenous social structures and replaced them by European institutions. Epistemological Foundations for social theories are embedded in the educational system, and imparted to the population, to explain and justify the roles each must play in society. Throughout the globe, the educational system educates students to become members of a capitalist society – human resources, instead of human beings.

7. Fundamental Epistemological Error Observations and Logic are NOT enough to arrive at TRUTH. This was noted by Imam Al-Ghazali, and can be easily proven by many different methods. To arrive at conclusions from Observations and Logic, one MUST add some metaphysical assumption (beyond reach of observations and logic). Both Islam and Christianity provide suitable enabling metaphysical assumptions. Secular Modernity created CONCEALED metaphysical assumptions, while DENYING their existence.

8. Reasons for this Obvious Error Centuries of Religious Wars => Rejection of Scholastic Approach. Assumption: Religious Differences => Religious Wars. Solution: Build Consensus by creating Objective Knowledge, equally acceptable to all, on basis of observations and logic. Problem: This is an IMPOSSIBLE task. The deep trauma inflicted on Europe by devastating religious wars, which personally affected Enlightenment thinkers, led them to ignore this obvious problem, and insist on universal acceptability of objective knowledge: That seems to be the only solution.

9. Consequences of this Error Hidden Metaphysics => Appearance of Objectivity & Universality This leads to the idea that Western Social Sciences are applicable to ALL societies. Timothy Mitchell (2002) writes: “The possibility of social science is based upon taking certain historical experiences of the West as the template for a universal knowledge.” Western Social Sciences are lessons – derived from Western historical experiences – on how to build secular societies. These are in conflict with Islamic ideas about how to build society.

10. Five Fundamental Metaphysical Questions: Why was the Universe Created? What is the position of man within this creation? What is the code of conduct the human beings should follow? What is the best form for a human society? What is the nature of KNOWLEDGE – how do we find and evaluate answers to the questions above? These are metaphysical questions, because they cannot be answered using observations and logic.

11. Islamic versus Western Social Science Islamic Social Science Universe created by God as a testing ground for humans Man is the best of creation Morality is given by God, and built into Human nature All humans are a family The most certain knowledge comes from God. All human knowledge build upon this, but lacks certainty. Western Social Science Universe created by random accidents, without purpose. Man is a type of animal There is no morality Survival of the fittest, in a competitive cutthroat jungle We can arrive at certainty – universal truths – by using observations and logic

12. Consequences of Western Metaphysics

13. [1] Random Creation of Universe: Meaningless Lives Bertrand Russel: A Free Man’s Worship Man is the product of causes which had no prevision of the end they were achieving...his origin, his growth, his hopes and fears, his loves and beliefs, are but the outcome of accidental collocations of atoms...all the labors of the ages, all the devotion, all the inspiration, all the noonday brightness of human genius, are destined to extinction...in the vast death of the solar system . There is no higher purpose to life.

14. [2] Humans as Animals: Purpose of Life Pursuit of Pleasure, Power (politics), Profits (firms) Core Economic Principle: Utility Maximization Failure on both Normative and Positive Grounds: Positive Failure: Karacuka and Zaman: Empirical Evidence Against Utility Maximization: A Survey of the Literature Normative Failure: Easterlin Paradox, and Happiness studies. Consumption only affects short-run happiness. Long-run welfare depends on character and social relationships.

15. [3] No Morality Utility Maximization: Economic models focus on individuals maximizing their own utility, with no intrinsic role for moral considerations in decision-making. Contract Breaches: In subgame perfect equilibria, individuals are expected to break contracts if it benefits them, implying no moral obligation to honor agreements beyond personal interest. Market Efficiency: Theories prioritize efficiency over ethical concerns, assuming rational behavior driven by incentives, regardless of the morality of actions. Neutrality of Economics: Economics is seen as a positive science, describing "what is" rather than prescribing "what ought to be," leaving morality aside.

16. [4] Life in a Jungle Survival of the Fittest: Social Darwinism asserts that competition ensures the strongest entities (individuals or firms) survive, driving success. Might Makes Right: Power determines justice and authority, reflecting Machiavelli's view that "the ends justify the means" in politics. No Room for Morality: Economic competition among firms mirrors a jungle-like environment where profit trumps ethics, and decisions prioritize self-interest. Constant Struggle: Just like in nature, resources are limited, leading to relentless competition and domination by the strongest.

17. [5] Epistemological Arrogance Robert Lucas: 2004: Presidential Address to the AEA: We have solved the biggest problem of Economics: Recession Prevention. Solow Testimony at Congressional Investigation into Failure of Economics: DSGE model has only agent; deception is impossible Congressional Committee: It is not just that Economists failed to warn of GFC, they confidently predicted it was impossible. Macro models in use prior to GFC 2007, in which crises are impossible, continue to be used post GFC. No change. Economic theory self-portrays as a positive science, with Laws of Demand and Supply on par with Newton’s Law of Gravity.

18. An Islamic Approach to Humanities: Uloom-ul-Umran Zaman, Asad, An Islamic Approach to Humanities (July 2014). Journal of King Abdulaziz University: Islamic Economics, Vol. 27, No. 2, 2014, Available at SSRN: https://ssrn.com/abstract=3066267

19. Societies are continuously evolving/changing. Social Theories co-evolve with societies There is no equilibrium, in continuous change process. There is radical uncertainty, so optimization is impossible. Factors which drive social change are hidden, so study of social change requires going behind appearances: no positivism. Social theories are always LOCAL – time, place, geography, society specific. They are NEVER universal theories, applicable to all societies throughout history, at all times. That is why Social SCIENCE is a misnomer.

20. Uloom-ul-Umran: Study of social change bit.ly/AZUUU Social Classes bound together by Asabiyya – no longer an important force. Many alternatives to produce social cohsion . Social classes, united by shared goals and shared theoretical frameworks, continue to drive history. Critical Difference: Entanglement: Social Change is driven by external factors, class struggles, and policies devised to manage social change, based on theories to understand, explain, and control the change process. Social Change => Theories => Policies => Social Change

21. Three Types of Models Classical Economics: Equilibrium and Optimization: Based on 19 th Century Physics. Dynamic Models: Modern physics sets up differential equations to describe evolving physical systems. Some economists have borrowed this methodology, a vast improvement on classical. Agent-Based Models: Designed properly, these can capture social change, including evolving agent behaviors. The laws governing social systems can and do change as the societies evolve. This change happens due to conscious efforts, free choices, and class struggles, and is unpredictable.

22. Illustration of Co-Evolution of Societies and Social Theories

23. Theories Co-Evolve with Society 16 th to 18 th century: Continuous European Wars: Mercantilism 19 th Century: Global Colonization, Trade & Peace in Europe: Smith Sterling/Gold Standard: UK dominates the Globe. WW1 & Great Depression: Keynesian Macro for Unemployment WW2: Bretton Wood and the Dollar Standard 1971: Nixon Shock and Floating currencies. 1999-2000: Repeal of Glass-Steagall, Commodities Futures Acts. Massive expansion of risky finance and shadow banking. Leading to GFC 2007 and another crisis in Economic Theory.

24. The Origins and Evolution of Islamic Econ Religion = Private Belief System (Faith) + Social Theory (DEEN) Religious Wars in Europe led to abandonment of Scholastic Theory (Christian DEEN). This was replaced by secular DEEN. By WW1 there were three main ideologies about how to organize society: Capitalism, Communism, and Socialism. Each of the three was a DEEN – a theory about how human societies should be organized, without reference to religion.

25. WW1 and WW2 Substantially Weaken Europe Independence Movements around the globe succeed, ending era of European colonization. Independence movements required struggles, and high risks. These are fuelled by ideologies. First Generation Islamic Economics was part of the freedom struggles in Islamic world. 1GIE recognized Capitalism, Communism, and Socialism as different varieties of materialistic DEEN, and explains how Islam offered a superior way to build economic dimensions of society.

26. Post Colonial Era Wars of Independence were fought on the basis of ideologies. BUT, after freedom, the Coconut Class took over. This TRAITOR class had been educated and trained to mediate between the white rules and the masses. The education developed love, admiration and awe of the Europeans, and hatred, and contempt for indigenous culture, traditions, and heritage. This permitted the traitor class to join the rulers in exploiting the public. After the departure of the Europeans, this class naturally stepped into power.

27. Ruling Classes Continued Colonial Systems Colonization was designed to extract revenue from the masses and send it to Europe. The Ruling classes continued the system but pocketed the gains. The Educational system was of critical importance to maintain the ruling class in power. It was continued without changes. As a result, there was no opportunity to try to implement an Islamic system. This led to the birth of Political Islam. The effort to capture the state so that Islamic systems could be implemented.

28. Birth of 2GIE: 1976: Int’l Conf. on IE, Mecca Decades of efforts had failed to achieve political control. Instead of revolutionary 1GIE, 2GIE decided to be pragmatic. Work within existing capitalist economy, and transform it to Islamic. Critical Dimension of Change: Acceptance of Scarcity Definition. 1GIE had strongly rejected scarcity, arguing for the BOUNTY of Allah 2GIE rejected 1GIE thoughts, and said scarcity is a plain fact, just like the modern economists assert. Reason: 2GIE wanted to modify capitalism. They were trained in capitalist economists, and learned to believe it.

29. In critical areas of conflict, 2GIE accepted Samuelson, and re-interpreted Islam Scarcity versus Fazlullah. Utility Maximization versus Prohibition of Israf and Tabzeer . Profit Maximization versus Service Maximization for Firms. Unquestioning acceptance and approval of faulty empirical, quantitative and mathematical methodology, strongly in conflict with both earlier historical and qualitative methodology prevalent in economics, and with Islamic intellectual tradition.

30. Global Financial Crisis 2007: Crisis in Economic Thought Many major economists agreed that events could not be explained by conventional theories. 2GIE = Capitalistic Economic with adjustments – also in crisis One group wants to double down – do even more mathematics, empirics and quantitative. 3GIE offers a return to the radical and revolutionary message of 1GIE – but this time not tied to the nation-state framework. The Crisis in Islamic Economics (January 31, 2012). Journal of King Abdul Aziz University: Islamic Economics, Vol. 25 No. 1, pp: 147-169, Available at SSRN: https://ssrn.com/abstract=2725421

31. Different Metaphysics Leads to Different Foundations for 3GIE

32. 1. Purpose of Creation of Universe As a testing ground for man. Rational Behavior: Recognizing the Signs of God, both in external reality, and within oneself. Recognition leads to love, hope, fear, and obedience. In all dimensions of our individual and social lives, we must strive to fulfill the orders of Allah. This provides very strong and solid foundations upon which to build an Islamic Society. The economic dimensions of society: Waqf instead of Banks.

33. 2. Purpose of Creation of Man Man has been created as the best of the creations. He has been reduced to the lowest of the low. That is, inside man is the potential to rise higher than the angels, and also the potential to be the worst of the beast. The goal of life is to realize this potential for excellence. He created life and death to see who is best in deeds. The way to realize this potential is to strive to do the best of deeds for the love of Allah. Among the best of the deeds is to spend that which you dearly love for the sake of Allah (Minimize Utility!).

34. 3. What is Morality? Islam is Deen-ul- Fitra . We were created and made to recognize God. Morality and recognition of God are built into our nature. A pure heart can distinguish between good and evil. A bad deed blackens the heart. Repetition blinds the heart. Tazkiya is required to restore the purity of the heart. The code of conduct is also available in the Shari’a Law. Both the internal cleansing of the heart and external framework of law are needed. In secular society, internal compass was abandoned, and only external regulation was adopted, with disastrous results.

35. 4. What is the nature of human society? The creation of God is the family of God. God loves best those who serve His family. An ideal society is tied together by bonds of love, which are beyond price. Social Responsible (not human rights) is the defining character of an Islamic Society. All children are OUR children, and all are entitled to education, health, and all basic welfare needs – Providing this is the collective responsibility of the society.

36. 5. What is the nature of human knowledge? Useful Knowledge enters the heart, enables m’Aarifa of God, and eases the path to paradise. Knowledge is the most precious gift of God to mankind, which elevates men above angels. Useful knowledge enables us to recognize God via the signs in the external universe, as well as those within our souls. Useful knowledge enables us to turn all of our life into an act of worship. 3GIE is effort to implement the orders of Allah in our personal lives, in our community, and collectively as an Ummah.

37. Specific Features/Contents of Planned Textbook on 3GIE

38. 1. History and Social Theory Societies are continuously evolving and changing. Thus, social theories (politics, economics, societal) must also co-evolve. This concept is resisted by many scholars of Islam, who conceive of Islam as a universal invariant set of principles, equally applicable at all times. It is important to understand a clear bifurcation. The Quran, and the Seerah of our Prophet SAW, provides us with a goal, an ideal to strive for. Just like the compass always points to the North Pole. However, the NEXT step to take, in moving towards the goal, is strongly dependent on local conditions.

39. How to Apply the Quran today will differ from how it was applied in earlier times Quranic command: protect the Ummah from attack. Implementation: learn archery and horseriding . Later, learn how to shoot guns, and drive vehicles. Later, use artillery, and drive tanks. Quranic command: feed the hungry Implementation: production and distribution of agricultural products, later: hydroponics, biotechnology, genetic engineering. Quranic command: Unite the Ummah so it feels like one body. Implementation today: overcome the nation-states creating to divide and rule us, and imagine community at a higher level.

40. The need to develop Social Science on Islamic Foundations Two common mistakes We already have a suitable social science based on our Fiqh and our intellectual tradition and historical experiences. Social science is a “science” universally applicable to all societies. There is no need to re-invent the wheel. See: Rebuilding Social Sciences on Islamic Foundations bit.ly/AZrss1 (Part 1) and bit.ly/AZrss2 (Part 2)

41. Knowledge: The Central Battleground The Quran provided knowledge to mankind which they did not have. This transformed the darkness of Jahilliyyah to the Noor of the Khair ul Quroon . The knowledge provided by the Quran remains just as fresh and revolutionary today as it was fourteen centuries ago. However, today, the Muslims are looking to the West, instead of the Quran, for guidance.

42. Quranic Guidance on Building Human Society Build on foundations of generosity, cooperation, social responsibility and striving for success on the day of Judgement. The social responsibilities approach is in dramatic contrast with the human rights approach. Capitalist societies are build on greed, competition, individualism, and hedonism, the opposites of foundations principles of Islamic societies.

43. Pragmatic Approach to Building Islamic Society Three Dimensional Approach: Positive, Normative, Transformative Generally speaking, people spend too much time detailing the normative – this is utopian (what will Jannah look like?) Transformative approach is firmly focused on here and now. What can we do with our current capabilities, available resources, given the current environment with massive hostile forces arrayed against us, as well as large scale potential allies? Go for quick wins – break up larger battles into concrete achievable subgoals. Abandon 1000 battles where we cannot make a difference.

44. Ending Dua.