Critical Overview of the History of Islamic Economics: Formation, Transformation, and New Horizons

Abstract

The history of Islamic economics, which originated in the middle of the twentieth century, is strongly tied to the practice of Islamic finance. The emergence of the commercial practice of Islamic finance in the Gulf countries and the challenge of the introduction of comprehensive Islamic economic systems in Pakistan, Iran and Sudan gave strength to the arguments about Islamic economics. The tension between theory and practice resulted in a division of the discipline into two groups: 1) the aspiration-oriented school which aspires to the ideal of Islamic economics and adheres to the mudaraba consensus obtained at the early stage, 2) the reality-oriented school which gives importance to the economic feasibility of Islamic finance and accepts the current practice of commercial Islamic finance. Islamic economics has been developed with arguments between both schools regarding aspiration and reality in the theory and practice of Islamic finance. This paper demonstrates that both groups share common ground for their arguments regarding the definition of riba; this implies that those who do not agree to its definition do not participate in the argument of Islamic economics. This fundamental framework of Islamic economics is robust and shapes every argument among Islamic economists although a few efforts to evade the framework can be recently found.