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Introduction to Islamic Economics: Theory and Application by Abbas Mirakhor, Zamir Iqbal, Hossein Askari

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Chapter 4The Islamic Economic System

  1. Role of justice and ethics in the Islamic system.
  2. Manifestation of justice in policies in Islam.
  3. The differences between the Islamic and conventional financial systems.
  4. Why interest and interest-based debt instruments are prohibited in Islam.
  5. Role of government in the Islamic and in the conventional financial systems.
  6. Importance of ethical behavior in Islam.
  7. Importance of modest lifestyles and sharing of income and wealth in Islam.
  8. Islam's requirement that individuals be ethical and unselfish.

According to Douglass North, each economic system has an “institutional matrix” that “defines the opportunity set, being one that makes the highest payoffs in an economy's income distribution or one that provides the highest payoffs to productive activity.”1 North contends that in all economic systems, institutions (rules of behavior) are designed by humans to impose constraints on human interaction. These institutions “structure human interaction by providing an incentive structure to guide human behavior. But an incentive structure requires a theory of the way the mind perceives the world and its functioning so that institutions provide those incentives.”2

It is here where paradigms become relevant because paradigms in economics do have conceptions of humans and society, and their interrelationships. Such conceptions are themselves products of a meta-framework whose elements may or may not be explicitly specified but which, ...

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