Author Archives: Asad Zaman

This post provides a summary of my first lecture, and links to the entire course of 30 lecture, on an Islamic Approach to Microeconomics. The first half of the course is based on Hill and Myatt Anti-Textbook of Micro. Teachers who wish to develop alternatives to conventional courses should find this material useful.

An Islamic WorldView

In Fall 2017, I taught the standard Ph.D. first semester course on Micro-Economics using an Islamic Approach. The first lecture, summarized below, explains why an Islamic approach makes a huge difference to the study of Micro. The whole set of 30 lectures for the entire course, together with slides, references, notes, and supporting materials (link: Advanced Microeconomics)    is freely available for ANY teacher who would like use and adopt this approach for their own courses in Microeconomics. I would be happy to provide any necessary support to teachers would like to try this novel experiment. I can promise that the students will very much enjoy this approach, because it speaks directly to the heart, and can easily be understood — in contrast to conventional micro, which just involves memorizing math, and learning things about human behavior which are patently false. [shortlink:]

90min English Video-Lecture on YouTube. 2500…

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This is the second lecture on Understanding the Rise and Fall of the Gold Standard — shortlink: — we start with a  Summary of First Lecture 

The first lecture discusses the Keynesian theory that the exact level of money in an economy is critically important – too little leads to recessions, while too much leads to inflations. Furthermore, domestic business cycles, and international financial crises are caused by pro-cyclical behavior of current artificial systems of money creation and international trade. Standard macro theories make it impossible to understand the economy because they assert that money is neutral, and does not affect the real economy – exactly the opposite of the Keynesian idea that the quantity of money is all important. Standard macro model currently in use throughout the world have no explicit role of money, banks, and credit, even though these factors are of central importance in understanding the world. Once we understand the vital role and function of money within an economy, it becomes possible to understand historical events of the twentieth century – whereas this is impossible using conventional macro theories. The first lecture summarizes how the colonial system came into being, and the monetary arrangement for a hard currency at the core and soft currencies in the periphery. This system of fiat currencies works fine within one system of colonies, where the value of money is decreed by sovereign fiat. For trading between different countries, the gold backed currencies were used. As European countries prospered by exploiting resources throughout the globe within their colonies, inter-European trade increased. The optimal quantity of money required for the domestic economy is not the same as that required for stable international exchange rates. The pro-cyclical money creation which is characteristic of the system creates cycles, and large cycles lead to crises on a routine basis. World War I was partly caused by the breakdown of the colonial trading system due to the end of expansion possibilities after the completion of the conquest of the globe. Efforts to restore the gold standard after World War I failed. The second part of the lecture discusses the post World War I history, with reference to the international financial architecture that emerged in the post-Gold era after World War I.

3100 Word Summary of Second Lecture on Global Financial Architecture

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In previous parts of this article (Understanding Macro I & Understanding Macro II), we have described how strict financial regulation and Keynesian prescriptions for full employment brought prosperity for the masses, but reduced corporate profits. This last part describes the successful counter-attack by corporations which reversed this state of affairs, causing a massive rise in the income shares of the wealthy 1% and a decline in the fortunes of the bottom 90%.

In the mid 70’s, when I was studying for my Ph.D. in Economics from Stanford, Keynesian economics ruled the roost; pre-Keynesian free market economics was confined to the Chicago School, and not considered intellectually respectable. This situation was reversed in the 90’s, when the Chicago School became dominant, while Keynesian economics was no longer considered respectable. The multi-dimensional strategy used to create this revolution on the academic front is described by Alkire and Ritchie in “Winning Ideas”, while the global strategy to transform socialistic economies into capitalistic free markets is described by Naomi Klein in The Shock Doctrine: The Rise of Disaster Capitalism. A common thread between the two is the patient preparation of detailed plans, while waiting for a crisis, which provides an opportunity to implement these plans.

The intellectual crisis that Chicago had been waiting for occurred in the early 70’s when the Arab Oil embargo, in retaliation for US support of Israel, led to stagflation in the USA. The simultaneous occurrence of high inflation and high unemployment was said to be in conflict with Keynesian theories, while the Chicago School theory of Milton Friedman was said to provide an explanation for the unexpected phenomena. This became widely accepted, and led to a substantial rise in the prestige of the Chicago School, and a blow to the Keynesians. The 1% capitalized on this by providing funds to Sveriges Riksbank, the Central Bank of Sweden, to create a simulated Nobel Prize for Economics, named the Sveriges Riksbank prize in honor of Alfred Nobel. The Nobel family protests against this appropriation of the prestige of the Nobel Prize were ignored, and the public was fooled into accepting this just like the genuine Nobels. In quick succession, roughly half of all the Nobel prizes were awarded to Chicago economists, interspersed with 50% going to randomly chosen others to create a semblance of neutrality. This led to a rapid rise in the academic prestige of the Chicago school.

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In part 1 of this article (Understanding Macro: The Great Depression (1/3), we saw that Keynes challenged classical economics on many fronts. Against the classical idea that free markets will automatically eliminate unemployment, he argued that governments needed to adopt appropriate fiscal and monetary policy in order to create full employment, as a necessary condition for high economic growth. He also argued that money is not neutral, and that there is fundamental uncertainty about the future.  Widespread acceptance of Keynesian economics was one of the two major ingredients that led to prosperity in Europe and USA after World War II. We start with a discussion of the second ingredient, which was strict regulation of financial institutions.

It was obvious to all that irresponsible lending had caused the Great Depression. The creation of the Federal Reserve Bank in 1914 allowed banks to create credit freely. Banks could provide loans to anyone who asked for it, without minimal backing in cash reserves, since the Fed would provide them with cash in case of any shortfall in reserves. This was a windfall for the private banking sector, since they could provide credit for loans at zero cost to themselves, simply by making an entry on their books. Banks capitalized on this opportunity by creating a debt-based boom in the economy. Consumers were encouraged to buy everything, especially real estate, housing, and stocks on credit. Easy availability of loans created a boom in economy, referred to as the roaring twenties. As prices of land and stocks increased, people rushed out to get loans to buy more, in order to get a share of the easy profits due to soaring values. Eventually, a stock market crash in 1929 punctured this bubble, leading to the Great Depression of 1929. About 11,000 of 25,000 banks collapsed, wiping out the life-savings of millions, since there was no deposit insurance at the time.

The Great Depression was a massive crisis, a man-made disaster of unimaginable proportions. The stock market crash of 1929 set off a worldwide chain of bankruptcies and defaults. Factories and businesses closed, workers plunged into poverty in millions, houses and farms were repossessed, crops which could not be sold were dumped into the sea. By late 1932, manufacturing output had fallen to half its 1929 level, and some 30% of workers  searched in vain throughout the country for jobs to support their families. Farmers unable to sell their produce, unable to repay their bank loans were evicted and with their families joined the human flood of misery. Keynes wrote that ‘we are living in the shadows of one of the greatest economic catastrophes of modern history’. In pattern worthy of note, the shock of the Great Depression created the possibilities of radical changes in ways of thinking, and in the structure of policies and institutions.

In the aftermath of the Great Depression, very stringent regulations on banking were passed by Roosevelt, after he was elected in 1932. It was clear that this was required, since banks have an incentive to gamble with other people’s money. When they make gains, they can pocket them. Losses are passed on to the depositors. To prevent this, the Glass-Steagall Act prohibited the banks from investing in stocks, and in many other types of speculation that had been responsible for the Great Crash. The effectiveness of banking regulations is shown by absence of large scale bank failures for nearly fifty years. Repeal of regulations in the Savings and Loan sector by Ronald Reagan let to the first massive banking crisis in the 1980s, which wiped out the profits of the entire banking sector for this fifty year period. Nonetheless, the de-regulation of banks continued, culminating in the repeal of Glass-Steagall in 1999, followed by the Commodity Futures Modernization Act of 2000, which created an unregulated financial sector. It took only seven years for the natural consequence, the Global Financial Crisis of 2007. But this is moving ahead of our story.

Going back to the post-war period, Central Banks all over the world started following Keynesian prescriptions for monetary policy. Keynesian theories suggested that if the rate of growth of money was lower than required by economic growth, it would lead to recession and unemployment. If it was higher than required, it would lead to inflation. Thus, the job of the Central Bank was to keep the money supply at just the right rate required to maintain full employment, while avoiding inflation. In conjunction with strict regulation of the financial sector, Keynesian policies worked like a charm for almost three decades following the second world war. Because of full employment everywhere, USA and Europe enjoyed a golden era of high growth which enriched the masses, and created unprecedented levels of prosperity. But there was a snake in this Garden of Eden, waiting for his chance to strike.

Two deep truths about Capitalist economies were discovered by Marx. One is that the fruits of capitalist production are distributed among classes according to their relative power. As an illustration, a recent study showed that the top 1% captured 85% of the growth over 2009 to 2013. The second truth is even deeper: capitalism works with the consent of the exploited, by persuading laborers of the justice and necessity of their exploitation (see ET1%: Blindfolds created by Economic Theories). Conventional economic theories of the labor market are ideal tools of propaganda for this purpose . These theories, proven false by Keynes and his followers, show that capital and labor both get paid what they deserve, in terms of their contribution to the economic production. Keynesian theories made the government responsible for creating full employment, empowering the masses, and enabling them to escape exploitation by the wealthy. This led to a dramatic rise in general prosperity, and equally dramatic decline in inequality and the wealth share of the top 1%.

The top 1% did not accept this loss of prestige and power, but made patient and far-sighted plans to reverse this situation. As Milton Friedman said “Only a crisis – actual or perceived – produces real change”. They prepared ideologies, theories, institutions and acolytes while waiting for the desired crisis to operationalize their plans. Naomi Klein in “The Shock Doctrine: The Rise of Disaster Capitalism”, has brilliantly described how crises around the globe were used to force free market policies down the throats of an unwilling public. These policies enriched corporations while impoverishing the people and creating massive social disturbances. In the USA, the opportunity to launch a counter-revolution against Keynes came in the 1970s, as we will discuss in the third and last part of this article. It is rather amazing that this counter-revolution was able to turn back the clock, reject all Keynesian advances, and go back to pre-Keynesian theories solidly rejected by empirical evidence.

For the last part, see: Understanding Macro III: The Rule of Corporations

Lectures on First Steps towards Understanding Macroeconomics, on Friday 4th May 2018 in AR Kemal Rm at PIDE, by Dr. Asad Zaman, VC PIDE. 1hr 20m Video Lecture( shorlink:

3100 word summary of lecture:

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I am reblogging this post, from three years ago, in honor of Bi-Centenary Anniversay of Marx. I would like to add that the Marxist analysis of Capitalism is, hands down, far superior to anything currently being taught in conventional economics courses at Universities today.  For those who would like to pursue it, David Harvey’s Reading Capital is an excellent series of lectures which goes through and explains the Magnum Opus of Karl Marx. It is a deep Marxist insight that Capitalism works not by force, but by persuading the laborers of the necessity, justice, and fairness of their own exploitation. Modern economic theory is the ideal tool for this purpose. To bring out this essential but ignored aspect of economic theory — that it is nothing more than propaganda for capitalism, it is useful to re-label it as ET1% – The Economic Theory of the top 1%. A more detailed analysis of the deceptive nature of ET1% is provided in my sequence of posts on ET1%: Blindfolds Created by Economic Theory

WEA Pedagogy Blog

Published in The Express Tribune, September 7th,  2015.

Ever since its origins in industrialising England, the capitalist economic system has always been subject to crises. There are countless theories as to the causes, consequences, and possible remedies for these. Karl Marx was among the earliest and most famous critics of capitalism. He argued that the source of the wealth produced by capitalism was the labour of the workers. The capitalists use their power to make profits by exploiting workers, depriving them of their due shares of profits. Capitalismrequires growth to prosper, and this could only come by increasing exploitation. Crises would marxoccur when workers would be oppressed beyond their limits. Eventually, these crises would destroy capitalism as the workers revolted against this unfair system.

Of course, these ideas are anathema to capitalists. During my own studies of economics in universities, a shallow caricature of Marxist economics…

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The talk linked below explains why the positivist/nominalist methodology used in Econometrics leads to mostly nonesense regressions. It also explains how a realist alternative can be developed.

“The Philosophy and Techniques for Quantitative Research” – Keynote Address by Dr. Asad Zaman, VC PIDE at Workshop on 19-20 April, 2018 Dept of Economics, Fatima Jinnah Women’s University, Rawalpindi, Pakistan.

My message will come as a surprise to students gathered here to learn advanced econometric techniques. Let me begin by stating it baldly: “Econometrics is nothing more than Fraud by Numbers”.

As Joan Robinson famously said, “The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” A similar statement holds for econometrics. We should learn it not in order to acquire techniques which will teach us how to use data sets to make inferences about reality. Rather, we should learn it to avoid being deceived by econometricians. The techniques described by Perkins in “Confessions of an Economic Hit-Man” are in common use around the world. Fancy econometrics is used to persuade people to adopt policies which harm the public, while fattening corporate coffers.

As a simple illustration of econometric fraud, consider the following regression:

CONS    =              -268.7    +  6.78 SUR – 1.82 CO2 +  error    (R2=0.84)

Std Err:                  (25.9)       (0.73)         (0.65)           (20.0)

Where CONS = Private Consumption Expenditure in Pakistan, SUR =Survival to age 65, female (% of cohort) = SP.DYN.TO65.FE.ZS, C02 =CO2 emissions from gaseous fuel consumption (% of total)= EN.ATM.CO2E.GF.ZS – these are variables taken from the WDI data set.

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