Islamic economics

Introduction — I wrote this essay a while ago, and I am adding this preface here to explain more about WHY I wrote it:


A central problem of our age is the turning of “means” into “ends”.  It is obvious that money, by itself, is not a source of pleasure –  it is a means to this end. Similarly, freedom is useful only if it is freedom to allow us to do something we want to do. Nobody would want the freedom to sell himself into slavery — which is effectively the only free choice offered to the poor in capitalism. Yet, today, due to a long, strange, and complex, historical process, freedom and wealth have become the goals of life, and the religion of most people on the planet. By religion, I mean that morality is based on these two goals — anything which creates wealth is desirable and hence moral, while anything which allows us greater freedom to act on our desires is also moral (this is the foundational principle of utilitarianism). In order to clear our minds of traps created by false paradigms, it is very useful to contemplate the opposites, as a mental exercise. As the dialectical method suggests, let us focus on the possibility that wealth and freedom are harmful to us. Wealth tempts us into the misconception that we can buy happiness with it, and this cheap path to short-term happiness — “The Coca Cola Theory of Happiness” — prevents us from learning and understanding the sources of long-term happiness, destroying the possibility of genuine happiness. Similarly, freedom tempts us into following paths of behavior which lead to short term pleasures at the cost of our long term happiness — we pursue strategies of instant gratification, failing to understand the need for sacrifice, struggle, and voluntary acceptance of suffering, in order to achieve higher goals. Not having wealth would be useful to enable us to learn to search for happiness in more productive directions. Instead of freedom, discipleship and slavery to an established tradition which teaches devotees to act in ways that lead to self developments and enlightenment, may create long run capabilities which are beyond the reach of our current imagination and vision.

Modern economic theory is based on the absurd and ridiculous Coca-Cola theory of Happiness, and assumes that the purpose of all human beings is to maximize the pleasure they obtain from a lifetime of consumption — It is flabbergasting that economists are proud of this childish microeconomic theory as a great accomplishment! If we had a more mature understanding of sources of human happiness, we would be in a better position to develop an economic system which could succeed in providing welfare for all.

The Secrets of Happiness: (published in The Express Tribune, June 27th, 2016.)


Psychologists have studied abnormal behavior for a long time, but have only recently started to pay attention to happiness. In this article, we map the findings of this happiness research to traditional concepts, which have been abandoned by modern mindsets. Despite our strong convictions to the contrary, happiness does not depend on our external circumstances. The greatest myth about happiness is to search for it in the outside world. People think that the perfect mate, the perfect job, achieving this that or the other goal will bring happiness. When they achieve their desired external goals, they are inevitably disappointed. However, instead of re-thinking their strategy, they shift the goal-post, continuing to seek more and more in a desperate quest for the elusive happiness. But happiness does not lie outside us, and it does not lie in distant goals. It lies within our grasp, in the present moment. At the present moment, we need to be able to analyze and change our internal mindset. “Know Thyself,” or self-awareness, is one of the crucial keys to happiness.

Reflection can make us aware of our conscious thought stream, but it is more difficult to become aware of our subconscious thought stream. Among the many effective techniques for tapping into the subconscious, free writing involves taking ten to fifteen minutes to write down whatever thoughts come to mind, without paying attention to grammar, spelling, style or any formalities. This method works to bring out into the open our thoughts which create obstacles to happiness. Extremely damaging to happiness is rumination on hurts, losses, tragedies, missed opportunities and the like. With conscious effort, we can put away negative thoughts. The concept of “predestination” is a powerful tool to avoid rumination over what might have been. The Quran states that all misfortunes have been recorded in advance, “in order that ye may not despair over matters that pass you by, …” Resignation to an inevitable fate brings peace of mind, while despair and distress is caused by ruminating over what might have been, or what might be.

In addition to suppressing negative thoughts, we must cultivate and nurture positive thoughts. One important source of positive thoughts is to cultivate gratitude for the gifts we have been given by God, instead of regretting what we do not have. This, and many deep lessons about life, were traditional elements of an Islamic childhood training. Sheikh Saadi writes about a boy going to Eid Festival Prayers with old shoes, and regretting not having new ones like the other children. Then he sees a boy with amputated feet, and feels gratitude that he has the feet on which to put shoes. The gifts of God which surround us are so extensive that reflecting on what we have, and reflecting on the millions who do not enjoy our privileges, is sure to lead to gratitude. Furthermore, as a wonderful bonus, God has promised to increase our gifts if we are grateful for what we already possess.

Positivity is also generated by optimism, which is created by cultivating trust in God. We trust in His Wisdom that the short run trials and tragedies we face are in our best long run interests. Those who cultivate “tawakkul” remain serene in circumstances which cause nervous breakdowns for others. Furthermore, the Quran promises those who trust in God to lead them out of difficulties via pathways they cannot anticipate. We need to consciously practice and make efforts to learn to re-shape our thoughts and words into positive frameworks of half-full glasses, instead of the negative frameworks of half-empty ones.

All of the creation belongs to the family of God. If we seek to serve others, for the love of God, we will be duly rewarded. The highest standards are set by the Quran, which recommends giving away that which you love most. However, Islam is a pragmatic religion and our Prophet Mohammad SAW set out three levels of acceptable behavior. The highest level is to do good in response to harm done to you. The second level is to forgive the one who has done you harm. The third level, which is also permissible, is to take revenge, but only to the extent of the harm done. It is NOT permissible to do more harm than that which was done to you. Even without following the highest standards of conduct, it is amazingly easy to make others happy — even a kind word, which costs nothing, can do wonders. Selfish striving for happiness kills the possibilities of happiness, because what human beings value most is being loved and appreciated by others. We must give in order to get, to create a society with warmth and love, which is a core component of happiness. This then is the paradox of happiness: it comes to those who do not seek it for themselves but seek to make others happy, while it eludes those who pursue it vigorously without concern for others.

 A related article is “Can Money Buy Happiness?“, which discusses the Easterlin Paradox. See also, articles on society & happiness.  This article, with introductory comments on the dominant religion of hedonism, is also posted on my Islamic WorldView Blog


Whereas conventional economics takes the nature of man as fixed and exogenous, Islamic teachings consider humans to simultaneously possess the potential for being better than angels and also for being worse than animals. Given this dual nature of man, the focus of Islamic teachings is to invite towards the good, and to discourage and prevent the evil. The focus is to try to transform human beings so that they become kind, compassionate, cooperative and generous, instead of acting on their base instincts of greed and competition. For more details in this connection, see Spirituality and Development.

The following ABSTRACT of proposed paper submitted for consideration for the 12th ICIEF at Ummul-Qura University, 10-11 Feb 2019, Mecca, Saudi Arabia outlines a methodology for working on transformation of human beings towards the good.


All social sciences consist of three distinct dimensions. The first is a positive description of human realities. The second is a normative description of an ideal state of affairs. The third is a prescription of what needs to be done to transform the current state to the ideal state. Conventional economics describes humans as being homo economicus, motivated solely by the desire to maximize pleasures obtained by consumption (of goods and services). The ideal state of affairs is for all people to be able to satisfy all desires, but this is not possible due to scarcity. The transformative strategy is economic growth – we increase the amount of production in order to be able to remove scarcity and achieve plenitude. The pursuit of economic growth at all costs, prescribed by conventional economic theory, has caused massive economic injustice, and put the future of mankind in peril, by destroying planetary resources and human communities in the mad rush for growth.

Islam differs from conventional economics in all three dimensions. The description of human beings is substantially more complex, and closer to realities of human behavior. Humans have a wide variety of different goals, and they have conflicting desires and motivations. The human heart is a battleground between the forces of good and evil. The human being has been give the capabilities for excellence in both directions, for the greatest good as well as the greatest evil. The ideal state to strive for has been described theoretically in the Quran and Hadeeth, and the perfect model for behavior has been sent to us in the form of our Prophet Mohammad SAW. The strategy for transformation of human beings is Tazkiya, or purification of the heart from idle desires.
Conventional economic theory takes the nature and desires of man as exogenously given, and works on producing goods to satisfy all desires. Islam works on changing the hearts of men to purify them of the greed and competition for worldly goods, and replace these by the higher norms of cooperation and generosity. True richness is the contentment of the heart, which comes from abundance thinking, rather than worrying about scarcity. The Prophet Mohammad SAW created a revolution in history, transforming ignorant and backwards Arabs to become leaders of the world, and to launch a civilization which enlightened the world for a thousand years. Today, the central strategy of an Islamic approach to economics must similarly be to work on the hearts of men, instead of on the production of wealth.

OUTLINE of Proposed Paper:

Conventional Economics is wrong in all three dimensions.

As a DESCRIPTION of human behavior, homo economicus fails miserably.  As behavioral economists have discovered, actual human behavior is dramatically different from the predictions made by economists — see “Behavioral Versus Neoclassical Economics” or “Homo Economicus: Cold, Calculating, and Callous” for the contrast between reality and economic theory.

As a normative theory, the idea that everyone should seek to maximize the pleasure obtained from a lifetime of consumption is dramatically flawed. Seeking material comforts only brings short-term pleasure, but does not lead to long term happiness. See my earlier post on The Coca-Cola Theory of Happiness — even though a drink of coca cola may bring a lot of pleasure to a hot and thirsty man, keeping the referigator stocked with cold drinks will not bring him a lifetime of happiness. Deeper study shows that long term welfare and happiness is strongly dependent on cultivation of gratitude, compassion, and other characteristics and qualities encouraged by Islamic teachings.

As a transformative theory, the idea that growth will remove scarcity is exceedingly foolish. As we fulfill desires, they increase. Furthermore, people seek to have higher standards than their neighbors, in order to feel happy. This creates a rat race where everybody spends huge amounts of time and effort trying to achieve higher standards of living, but nobody feels happier as a result — the Easterlin Paradox: Can Money Buy Happiness?.  Islam teaches us if we give someone a valley full of gold, he will desire another one. Nothing will fill the belly of man except the dust of the grave. Islam offers the solution that we should NOT fulfill our idle desires, and control our Nafs. Instead, we should learn contentment of the heart, which is the true wealth.

Islamic Economics Offers a Superior Alternative in All Three Dimensions

As a descriptive theory, Islam provides us with a rich description of the complexities of human behavior. The human heart is a battleground between good and evil, and the human being has the capacity to be higher than the angles and also the capacity to be worse than the beasts. This matches with experimental evidence and also with our personal observations — human beings display cooperation and generosity, along with the selfishness and greed assumed by economics. Islam provides a far more accurate match to the observations of behavioral and experimental economics, giving us a better descriptive theory.

As a normative theory, Islam is far superior to conventional economics. Economics suggest that the sole purpose of life is maximization of pleasure obtained from the utiltiy of consumption. Islam teaches us that this pursuit of material goods and worldly pleasure is attractive to the hearts of men, but this is an illusion. Real satisfaction comes from higher pursuits, and cultivation of character traits like gratitude towards Allah for His countless gifts and blessings. The path to everlasting pleasure, both in this world and the next involves learning Tawakkul or Trust in God, cultivating Contentment, and learning Taqwa.

As a transformative theory, Islamics demonstrated their power by catapulting the backwards and ignorant Arabs to world leadership positions, and by launching a civilization that educated the world for a thousand years. These teachings still retain their power to change our hearts and to change the world — see Our Prophet SAW as a Guide for Revolutionary Change or Modern Miracles of Mohammad SAW. Unfortunately, as prophesied, Islam has become a stranger to the Muslims. Today the Muslims no longer believe in the power of Islam to create a revolution — instead, they think that we must rely on Western teachings in order to make progress. For a more detailed explanation, see The Modern Mu’tazila

To conclude — in all three dimensions, modern economics is seriously wrong, while in all three dimensions, Islamic economics provides a dramatically superior alternative. Sad to say, Muslims have been so impressed with the West that they have accepted Western economic theory as superior. Whenever they saw a conflict between Western economics and the Quran, they re-interpreted the Quran instead of rejecting the Western theories. As a result, they have been trying to create an Islamic economic based on Western foundational principles of scarcity, greed, and competition — see “The Crisis in Islamic Economics“. What we need to do instead is to build directly on Islamic foundations based on the abundance of the provision by Allah leading to generosity and cooperation. For further explanations, see The Spiritual Obstacle to Genuine Islamic Economics, and Questioning All of Economic Theory?

This continues a sequence of posts explaining how conventional economics is actually the economic theory of the top 1%: ET1%: Blindfolds created by Economic Theories. Eight central concepts of economic theory are shown to be deceptive – they have an appearance of objectivity, fairness, and equity, but actually conceal a strong bias in the favor of the wealthy. The previous post was the “Illusion of Scarcity.

We call the concept of “Pareto Efficiency” a swindle because it encapsulates a normative principle that property rights of the wealthy take precedence over the right to basic needs of the poor. However, it is disguised to have an appearance of scientific objectivity, while the opposite normative preference, which most people have, is said to depend on subjective and unreliable value judgments.

The principle of Pareto efficiency has a harmless and innocuous appearance. Who could object to the idea that if we give more material goods to everyone, then the society as a whole would be better off? However, we will show that Pareto Efficiency is deceptive and fully qualifies for the label ET1%. It appeals to everyone when we say that increasing social welfare requires giving more goods to all. But the hidden consequence of accepting this principle is that you cannot take wealth away from the super-rich to give to the hungry, because that would decrease the wealth of the super-rich. It also provides moral cover for increasing inequality, as we shall see. It also protects property rights against the taxation required to fulfill social needs of the poor.

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Major revolutions can be created by everyone doing the little bit that they can. This was the driving idea behind the article below, written for the Pakistani context. It was published in the Express Tribune on March 16th, 2017

The right nutrition between pregnancy and the second birthday has a dramatic effect on a child’s ability to grow, learn and thrive. Failure to provide adequately for the baby’s needs during this critical window can never be compensated for later. With one of the largest population of young people in the world, Pakistan faces a unique challenge. How can we ensure that all babies conceived and born in Pakistan receive the best care that we as a nation can provide? Our future literally depends on how well we can meet this challenge. At a rough guess, about 10 million children in Pakistan would lie in this critical target range. The challenge of providing adequately for all of them is too large for any organisation, including the government to meet. It would be entirely correct to call this situation a silent mega crisis, a problem bigger than the earthquakes and floods which received far more publicity and attention. Meeting the challenge requires all of us to work together on an out-of-the-box campaign, which could provide all the children of Pakistan with a brighter future. If approximately 100 million adults work together for a common goal, we can easily solve the problem which would be impossibly difficult to tackle by any other method.

The first step in this campaign is to take responsibility. We must not ask what other people or organisations are doing to address this crisis. We must ask ourselves what I can do to solve a tiny part of the problem that is within my reach. Ownership and responsibility have magical powers to create solutions. When it comes to my own children, I do everything in my power to ensure that they receive the best possible care. We must take collective ownership of all the children in Pakistan, and strive hard to do everything in our power to serve the needs of those children that fall within our circle of capabilities. The goal of our campaign is to create a million drivers of change — every driver takes creative responsibility for thinking about, and executing, what he or she, or the institution within which they work, can do about the mega crisis that faces our children. The possibilities are endless, and no one person can even conceive of all the projects that could be undertaken by one million drivers of change. Nonetheless, for the sake of illustration, let me list a few major areas which require attention.

Starting from the beginning, we need to take better nutritional care of pregnant women. Doctors and hospitals could design awareness campaigns about their dietary requirements, including micronutrients. The media could play their role by creating shows and news items which highlight the importance of providing the right kind of nutrition to pregnant and lactating women. Different institutions, like shops, restaurants, small scale business enterprises could offer to provide resources to women and children in their neighborhoods, according to their capabilities. Food manufactures should introduce special lines of nutritious foods, to provide delicious and healthy alternatives to junk food. Larger organisations like universities, big business, NGOs, etc., should participate on a grander scale. They should provide thought leadership in design and execution of appropriate strategies, as well as providing research input on the effectiveness on different types of interventions. If every individual and institution can take responsibility for changing a few lives, this would create the desired mega-response required to solve the mega crisis. But the key to this campaign is that we should not wait for someone to tell us what needs to be done. Just as we take responsibility for our own children, making plans without expecting other to help us in bringing them up, so we need to take ownership of all children that we can reach. As Gandhi said, “Be the change that you wish to see in the world.” We need to change our mindsets from being a spectator of events taking place in Pakistan to a game player and a game changer, who creates the events that others talk about.

The government should play the role of enabler and facilitator, cutting through bureaucratic red tape for the sake of our children. The First Thousand Days campaign must rise above political, racial, ethnic geographic, linguistic, religious and sectarian divides. There are many government programmes already in existence which deal with issues related to mothers and infants. Inefficiencies in these programmes exist because dying, malnourished and stunted babies do not figure prominently on our priority list of problems to be solved. Political obstacles could be removed if all relevant parties agreed to put our children first, ahead of all other concerns. Anxieties of Malthusians concerned about population growth should be relieved by research which shows that the poor have excessive children as old-age life insurance. When health and prospects for children improve, the birthrate goes down.

Babies come into the world as a bundle of joy, trusting and trustworthy, full of love for all, and with the capability to spread sunshine and happiness. If this campaign achieves nothing more than increasing our own personal interactions with the children of Pakistan, this will contribute tremendously to our own personal happiness in our daily lives. Just the memory of a baby’s smile full of love and trust is enough to bring warmth and happiness into our lives, and refresh our confidence in the future. To solve the great problems of the world — wars, terrorism, greed, violence, intolerance, hatred, etc., — we need to learn the qualities of innocent babies. As the Bible states, “Truly I tell you, unless you change and become like little children, you will never enter the kingdom of heaven.” Ancient wisdom, which we have neglected or forgotten, tells us that if we take good care of our children, they will take good care of us. Let us pledge ourselves to take better care of our children in Pakistan, and to personally ensure that at least a few children receive adequate nutrition through our own efforts. Amazingly, children thrive on love, developing stronger immunity, and better cognitive skills. Perhaps we don’t have enough material resources for all, but surely we can provide enough love to make our children feel that they are most beloved people on the planet.

1000 word summary of Quaid-e-Azam Lecture at PSDE 33rd AGM held on 14th Dec, 2017 at Islamabad. Published in Express Tribunethe Nation 13th Jan 2018. 43m Video Lecture on YouTube:

The main thesis of our lecture is that our quest for prosperity has failed to deliver the sought-after goals because we have misunderstood the meaning of prosperity , and looked for it where it cannot be found. We base our economic policies on modern economic theory, which is based on the amazing assumption that human beings act to maximize lifetime consumption, since this is the sole source of human welfare. Human beings are far more generous and cooperative than the assumptions of economic theory allow for. Even more important is Richard Easterlin’s discovery that enormously increased levels of consumption do not bring about corresponding increases in happiness. Consumption only brings short-run happiness; long-run happiness has no correlation with consumption, and is far better correlated with character traits like generosity and gratitude. Mindless pursuit of wealth, implemented by policies to maximize growth, has led to increasing misery, instead of prosperity . Growth-oriented policies have destroyed family lives, engaging all members in production of wealth, and they have damaged our environment, destroying the future of our species for short run gains. Can this damage be reversed? Can we improve human lives and welfare, and also stave off the impending environmental crisis? At the core of the crisis we face is the prioritization of wealth over human beings. A market economy cheapens human beings because it is based on the idea that human lives are commodities for sale in the labor market. Reversing these priorities requires the recognition that all human lives are infinitely precious, with amazing potentials and capabilities for growth in dimensions unknown. Taking this principle seriously would require re-writing all economics textbooks, and radically re-organizing our economic, political and social institutions. Taking collective responsibility to ensure that all members of a society get the chance to develop their capabilities would be a new definition of prosperity , very different from GNP per capita, which is the current focus of policy makers across the globe.

Modern economic theory makes accumulation of wealth the goal of economic activity, and values human lives only to the extent that they contribute to production. How can we reverse these priorities, putting the enrichment and empowerment of human lives at the center, and valuing wealth only to the extent that it is helpful in achieving this goal? The first requirement is to win the battle of ideas, creating consensus on the prioritization of human beings over material wealth. To do this, we need to recognize modern economic theory for what it is, instead of what it claims to be. To accomplish this goal, it is useful to label modern economic theory as Economic Theory of the Top 1% — or ET1% — and explain how all aspects of this theory are designed to portray increasing wealth of the top 1% as the goal of society, and also to show that this serves to benefit the entire society. For example, use of GNP per capita as a yardstick of social welfare exactly fits this description, since gains to the top 1% are first divided over the entire population and then measured, thus appearing to be generally beneficial, when in fact they are not. Overcoming this deception will involve replacing ET1% by ET90% — a new economic theory for the bottom 90%.

Karl Marx clearly recognized the deceptive nature of economic theory, and stated that functioning of capitalism requires convincing the laborers of the necessity and fairness of their own exploitation. ET1% does this by arguing the growth is the best policy to pursue for all, since benefits which obviously accrue to the rich will eventually trickle down to the poor. In contrast, Marx offered us ET90% by asking for a shift from each according to his abilities (to gather wealth) to “each according to his needs”, thereby prioritizing the needs of the poor over growth to provide more wealth to the already wealthy.

As a prescription for change, Marx urged the laborers of the bottom 90% to unite, and throw off their chains.  Experience shows that we can successfully unite laborers to revolt against the capitalists, but after the revolution, control necessarily remains in the hand of a small minority. The nature of power is such that this small minority is likely to be corrupted by it, and use it for personal gains, and to oppress the majority. Just like democracy has failed to give ‘power to the people’, so alternative systems of government also fail.

The Islamic solution works along different dimensions. It seeks to co-opt the rich and powerful, instead of killing them off, and replacing by another set of rich and powerful. This is done by creating social norms of generosity and social responsibility. Fourteen centuries ago, the revolutionary teachings of Islam led backwards and ignorant Arabs to world leadership. These teachings include the ideas that the best leader is the servant of the people, that power is given to us in order to protect the weak, and wealth is meant to be given to the needy. Widespread acceptance of these ideas created a society which provided basic needs, health care, and education to all members using the institutions of Waqf, and the norms of collective social responsibility and brotherhood. Because these ideas have been forgotten, they continue to have the same revolutionary potential today, as they did 1400 years ago. The most important first step in this revolution is sensitizing our hearts to feel compassion for sufferings of all mankind. The feeling that all of the creation is the family of God, and service to humanity, and all living creatures, is the highest form of worship, is essential motivation for the Herculean efforts required to create revolutionary changes required to reverse the increasing concentration of wealth at the top and misery at the bottom.

shortlink for this post:

Polanyi offers a deep historical study of how European societies based on traditional values of cooperation and social responsibility were tansformed into modern secular societies. In Polanyi’s terminology, social relations became embedded within the market, creating a market society driven by the imperative of commercialization, which makes money the measure of all things, including human lives. This transformation has affected all dimensions of human existence – politics, economics, society and most importantly, our ways of thinking about these areas. In particular, Modern economic theory is a product of historical forces, and provides an intellectual framework for glorifying the market as the best way of organizing our economic affairs.

I believe that understanding Polanyi is of great importance in understanding the conflict between the values and intellectual frameworks of market societies and traditional society (and also Islamic ideal societies). Understanding how the great transformation took place also provides some clues as to how we can try to create the counter-revolution in thought and action that is needed to undo the damages caused by this commercialization of all spheres of human existence. Over the past decade, I have spent a lot of time thinking about ahd studying Polanyi. The links below provides an introduction to my papers, video-talks, and shorter posts about many aspects of Polanyi’s work in The Great Transformation:

Summary: My 1000+ word summary of Polanyi’s classic: “The Great Transformation: The Political and Economic Origins of Our Times” has been wildly popular, remaining constantly among the top ten on the RWER Blog since it was was published nearly five years ago.  I have recently (25/12/26) revised and updated the post to clean up extraneous elements and clarify the substance in light of readers comments as well as my own improved understanding. Perhaps the most important element of this post is that it explains how living in a market society shapes our thoughts to conform with the commercialization it creates. Creating radical changes requires the first step of liberating our selves from these blinders, to be able to imagine radical alternatives.  I have also recorded a 28m video-talk on this topic, which has been added to the original post.

Methodology: Moving forward from critique, Polanyi’s analysis is based on methodological principles radically different from those currently in use. Understanding and implementing these principles woujld allow us to create a new approach to economics and social sciences. My 20 page paper explaining the three fundamental principles used by Polanyi was published in the WEA Journal: Asad Zaman (2016) ‘The Methodology of Polanyi’s Great Transformation.’ Economic Thought, 5.1, pp. 44-63. A brief 1000 word explanation of this methodology is available in a WEA Pedagogy Blog post:    The Methodology of Polanyi’s Great Transformation. The post also provides a link to a 45m video lecture on this topic. (This lecture has been by far my most popular video-lecture, with more than 2000 views.) Polanyi’s analysis provides the basis for a radically different approach to economics, which considers politics, society, environment, and economics as inter-related subjects which cannot be understood in isolation. One of the deep insights of Polanyi is that economic theory itself is a product of a power struggle between different social classes and cannot be understood outside its historical context.

Ecological Collapse: The relationship between the Great Transformation and the looming environmental catastrophe which threatens the future of humanity on planet Earth is discussed in Zaman, Asad, “Unregulated Markets and the Transformation of Society” Chapter 18, Routledge Handbook of Ecological Economics: Nature and Society. Editor Clive Spash. 2016. Major points made in this 5000 word paper are summarized in my earlier post on “Markets and Society” which also provides links to the full paper and a 50min Video-Talk on this topic. Very briefly, markets generate profits by appropriating and exploiting resources, eventually exhausting them, before moving on to the next frontier. The dynamics of growth is such that it is threating to exhaust the last remaining frontiers at the planetary level, leading to collapse. This topic is also addressed in my paper on “Evaluating the Costs of Growth” Real World Economics Review, issue 67, 9 May 2014, page 41-51.. Available at SSRN:

Islamic Economics: One of the central themes of Polanyi is the opposition between values of traditional societies and those of Market Societies. Islamic Economics is aligned with traditional values and opposes the commercialization generated by market societies. Studying these contrasts leads to a sharper understanding of the underlying principles of an Islamic Economy. These relationships are clarified in my 30 page essay on   “The Rise and Fall of the Market Economy,” Review of Islamic Economics, Vol. 14, No. 2, 2010, pp. 123–155. A brief explanation is also available from a post on “The Great Transformation in European Thought” in my “Islamic WorldView Blog”. A longer 5000 word explanation, meant as an entry for an Encyclopedia of Islamic Economics, was never published: The Limits of Market Economy.

Four Lectures on Polanyi: In my Advanced Micro class, I covered “The Great Transformation” in detail in four lectures listed below. Each lecture is about 90 minutes. The links provide both video-recording and transcripts of the lecture for faster reading.

  1. L16: From Hunter-Gatherer to World War 2
  2. L17: The Transition from traditional paternalistic and regulatory economies to market economy.
  3. L18: Three Artificial Commodities – Labor, Land, Money. Analysis of Social Change.
  4. L19: Devastating Impact of Unregulated & Expanding Markets, and how to reverse the Great Transformation – concluding lecture on Polanyi.

In addition to the longer articles/talks above, some short previous posts on the WEA Pedagogy Blog deal with topics related to Polanyi; these are listed below.

Meta-Theory and Pluralism in the Methodology of Polanyi: Post explains the meta-theoretical methodological stance of Polanyi. Polanyi is concerned with the process of social change. He analyzes how theories emerge as attempts by different social classes to understand, explain, control, and harness for their own benefit, changes which are created by external drivers. Thus, his is a meta-theory which studies the emergence of theories about economics, society and politics, and the impact of these theories on the alignment of power between different social groups.

The Neo-Liberal Way of Life: Madi’s post explains how the market society molds our way of life, as well as our ways of thinking, in accordance with Polanyi’s conception of “embeddedness” – that is, social relations are embedded within economic relations in a market society.

Hunter-Gatherer Societies: The idea that political and social structures of a society depend on the economic relations of production is cleanly demonstrated in context of primitive hunter-gatherer societies. This shows how economic theories are situated within historical context, unlike scientific theories which are universal invariants. It also shows the impossibility of analyzing economics in isolation from political, social and historical context.

Three Methodologies: The differences between contemporary, Marxist, and Polanyi methodology are clarified in this post. Contemporary economics treats the economy like a physical system subject to laws which are independent of what observers think – that is, economic theories do not affect the laws governing the economic system. Marx tells us that the economic relations of production are primary, and give rise to the social and political systems. Also economic theories emerge to justify the powerful (capitalist) classes. Thus economic theories are born out their historical context. This is well-illustrated by the Hunter-Gatherer Societies. Polanyi argues for two-way interactions. Economic theories are born out the historical context as a result of the struggle for power between different classes. At the same time, these theories are use to explain and control the economic system, so that theories actually influence the behavior of the economic system. For example, Marx’s theory of communism influenced the structure of the economy of Russia and China. This idea, that economic theories influence the behavior of the economic system, is alien to both modern economics and also to Marx, since material determinism excludes human will and interpretation from influencing the behavior of economic systems. However, human agency is at the heart of Polanyi’s analysis. For a link to more materials and a 90m video lecture on this topic, see: Advanced Micro Lecture 15: 19th Century European History

Entanglement of the Objective and Subjective:   Western epistemology is built on numerous false dualities which deeply damage our ability to understand the world we live in. Sharp separation of the body and soul, the unobservable motivations and the observable behaviors, normative and positive, and objective and subjective, are just a few examples. As philosopher Hilary Putnam has said, facts and values are inextricably entangled within the body of economic theory. We cannot separate the two, as economists assume, and assert. Many authors have realized how numerous un-appealing value judgments are built into the foundations of objective-seeming economic theories. See, for example, “The Normative Foundations of Scarcity,” Real-World Economics Review, issue no. 61, 26 September 2012, pp. 22-39, to see how three major value judgments are involved in making scarcity the fundamental concern of economists. This post shows how the objective and subject are inextricably entangled, which means that economists must take human agency into account, instead of treating them as robots subject to mathematical laws of behavior.   For a link to more materials, and a 90m video lecture on this topic, see: Advanced Micro Lecture 13: Entanglement of History and Economic Theories

An earlier (unsuccessful) attempt at organizing material on Polanyi: (to be updated later)

Because of Western dominance, brilliant thinkers from the East get very little attention in global media. Even though brilliant economists from East Asia and China have created globally acknowledged economic miracles in their countries, none of them have received a Nobel Prize. On the other hand, Western economists whose theories were demonstrably in conflict with the events that took place in the global financial crisis — like Lucas, and Fama — have received Nobels. One of our greatest un-sung Eastern Heroes is Mahbubul Haq. My recently published article describes the revolution he created in economic thought:

Goethe starts his famous East-West Divan with a poem about the journey (Hegire), both physical and spiritual, from the West to the East. In this essay, we consider the analogous journey from Western to Eastern conceptions of development. This involves switching from viewing humans as producers of wealth, to viewing wealth as a producer of human development. To start with the Western conceptions, both Adam Smith and Karl Marx defined economic growth as the process of accumulation of wealth. The range of diversity of Western thought is bounded by the Left-Right spectrum. Ideas on which both extremes agree command widespread consensus in the West. Consequently, a core concept of modern economic theory is that wealth is the means and ends of the process of economic development. Unfortunately, due to the dominance and influence of Western paradigms, this concept has been widely accepted and adopted in the East today.

Mahbubul Haq was indoctrinated into the Western development paradigm which gives primacy to wealth at leading universities, Yale and Harvard. He got the chance to apply these economic models as the chief economist in Pakistan during the ’60s. However, because of his Eastern upbringing and heritage, he was able to see the murderous message at the heart of the cold mathematics of the Solow-Swan growth models. These models focus on savings, created by reducing present levels of consumption, as the only route to the accumulation of greater future wealth.

Mahbubul Haq realised what is not mentioned in the economics textbooks: obsession with production of wealth requires us to use the sordid and cruel tactic of making workers produce wealth, and refusing to allow them to consume it, in order to buy machines and raw materials. He was clear-sighted enough to see the consequences of these policies: wealth did indeed accumulate, but it went into the pockets of the 22 families, without providing relief to the misery of the masses. Today the global application of capitalist growth strategies has led to a dramatic increase in inequalities both inside nations and across nations. Just one among many horrifying inequality statistics is that the top 13 individuals now have more wealth than the bottom 3.5 billion on the planet.

Dissatisfaction with state-of-the-art Western growth theories led Mahbubul Haq to a revolutionary insight, taken from the heart of the traditions of the East, and having no parallels in current Western economic theories. Instead of capital, Mahbubul Haq placed human beings at the centre of the process of economic growth, returning to the ancient wisdom that “human beings are the means and ends of development”. Even though he was called a heretic for going outside the boundaries of contemporary economic thought, the pragmatic genius of Mahbubul Haq sought to minimise differences and create bridges to conventional thinking in order to achieve acceptance for his radically different approach to development.

His Human Development Index (HDI) was a master stroke, combining two inherently incompatible conceptions of development in a compromise which ceded ground to wealth in order to create international visibility for poverty. His friend and classmate Amartya Sen was reluctant to accept the HDI because of certain inherent flaws in this marriage of fire and water, but eventually agreed to its practical necessity. The pragmatic approach of Mahbubul Haq paid off handsomely when the HDI measure achieved global recognition as rectifying major defects in the standard GDP per capita. Widespread acceptance and use of HDI has led to a radical change in the discourse on development, by adding poverty, health, education and other soft social goals to the pure and simple-minded pursuit of wealth. The revolutionary ideas of Mahbubul Haq have led to improvements in the lives of millions, as global consensus developed on the social goals embodied in the MDGs and SDGs.

The Human Development approach of Mahbubul Haq was carried further by Amartya Sen, who defined development as the freedom to develop human capabilities. This notion, closely aligned with Eastern thought, was so alien to orthodox economists that they rejected it. Consequently, a new human-centred field of development studies emerged, which combined many streams of dissent from orthodoxy. Unfortunately, leaders at the helm of policymaking in the poor countries of the world are trained in orthodox economic theories, and have not assimilated the radical lessons of Mahbubul Haq, acquired from bitter experience. The paths to genuine development lie open, but with their backs to the doors, they are unable to see them.

Conventional growth theories create the mindset that the game is all about wealth creation. We will worry about our poor population only after we acquire sufficient wealth to feed them. The poor are a burden on the development process because providing for them takes away from money desperately needed to finance development of infrastructure, purchase of machinery and raw material, and industrialisation. We cannot afford to feed the poor, if we want to grow rapidly. The human development paradigm stands in dramatic contrast to this currently common mindset among planners. Instead of utilising humans to produce wealth, we utilize wealth to develop human capabilities. Our human population, our poor, are our most precious resource. This point of view receives strong support in the empirical findings of a recent World Bank study entitled “Where is the Wealth of Nations?” The study finds that the wealthiest nations are rich because they spend money to develop their human resources, and not because of natural resources.

Thus, instead of being a burden, our poor are our most efficient means to development. If we use available wealth to improve their lives, to empower them, to educate them, and to provide them with the support they need, they can rapidly change the fate of the nation. Furthermore, they are also the end of the development process — that our goal is NOT to produce more and more wealth, a la Adam Smith and Karl Marx — but to ensure that our people lead rich and fulfilling lives. If we use our energies to achieve this goal, we have already arrived at the destination — we do not need to wait for a distant future where sufficient wealth will accumulate to enable us to take good care of our people.

Published in The Express Tribune, May 20th, 2017.