April 9, 2020 marks the 40th Anniversary of the martyrdom of one of the most brilliant scholars o... more April 9, 2020 marks the 40th Anniversary of the martyrdom of one of the most brilliant scholars of the late 20th century, Ayatullah al-Sayyid al-Shaheed Muhammad Baqir al-Sadr, RidhwanuAllahi ta’aala ‘alayh. Al-Sayyid al-Shaheed was an extraordinary and unique genius whose personal and intellectual accomplishments as a believing and practicing Muslim serve as example for others striving for perfection intended for humans by their Creator.
While the writings of al-Sadr were quite timely and important in his own time, understanding them at the present is crucial as the search for alternative socio-economic paradigms that can more effectively respond to the problems of humanity has intensified. In all of his discourses, al-Sadr was a first-rate logician who accorded logic and objective truth central and active roles without losing an opportunity to display the passion of his belief that Islam provides solutions to problems societies face.
Al-Sadr’s writings constitute an integrated and interrelated whole. Singling out a specific topic in exclusion of analysis of how it is related to his philosophy does not do justice to him, to his writings or to his readers. That said, this paper is a modest attempt to provide a brief commentary on a number of al-Sadr’s brilliant insights in presenting the theory and practice of Iqtisad (Islam’s vision of ideal economy). The point bears emphasis that this paper is not a commentary on the entirety of the views of al-Sadr’s on Iqtisad; to do some degree of justice to his views requires volumes. The paper instead focuses on some of his insights—those that economic analysis itself discovered years after him, with the purpose of indicating that the Iqtisadi contributions of al-Sadr and his genius deserve far deeper and more intensive scholarly treatment than they have received so far.
A short Note on Financial Repression Among ideas that have emerged since the crisis, two are high... more A short Note on Financial Repression Among ideas that have emerged since the crisis, two are highly significant, fertile and, potentially, paradigm shifters. These are ideas advanced by Piketty and by Reinhart and Rogoff (and their associates). Enriched with massive empirical efforts, both ideas are restatement of propositions that have rich theoretically related pedigree. And while their detractors focus on the trees, their readers have not lost sight of the forest so admirably and painstakingly painted. Arguably, Piketty's can be traced to propositions advanced by Keynes in his criticism of capitalism. In his article contributed to an Economic Journal Symposium in 1932, Keynes explicitly associated two " evils " to capitalism. First was its inability to create full employment and second its ability to create highly skewed income and wealth distributions, both of which he attributed to interest rate as " the villain of the piece ". This was not a rate that cleared the market for financial resources but a rate charged by the " rentier " in search of riskless profit. The rentier made market coordination a serious challenge that would lead to disequilibrium. Piketty's r and g dynamics are but an echo of Keynes and, to some extent, Frank Ramsey. The cluster of ideas advanced by Reinhart-Rogoff and their associates contend that: (i) all financial crises are, at root, debt crises regardless of labels, (i) high level of debt is drag on growth, and (iii) to avoid outright default when public debt is very large, governments resort to " financial repression " to " liquidate " their debt. Here too, an argument can be made that the theoretical root of these pronouncements date at least to Keynes-Tobin-Shaw and McKinnon that laid the foundation of the financial liberalization, the " get the prices right " movement of 1970-1990s and, ultimately, the " Washington consensus ". Getting the prices right meant allowing market forces to operate freely to induce all prices to reflect opportunity costs. All prices that is except the price of financial resources whose opportunity costs was the " market rate of interest ". Never mind that there was no such a thing as a " market rate of interest " in an environment in which policy drove the " market rate of interest " Tobin (1969), and before him Keynes, had already pointed out the policy induced deviation of interest rates from the true opportunity cost of financial resources. Monetary policy had the ability, Tobin argued, to force a deviation between market valuation of capital and its replacement cost. His " fundamental-valuation efficiency " concept, interpreted as " allocative efficiency " , would establish the opportunity cost of financial resources requiring that they be directed to their best uses. According to the " get the prices right " doctrine, in a market where prices were not allowed to reflect their opportunity cost repression ruled. This was the McKinnon-Shaw argument for liberalization of the financial sector of developing countries. Financial repression, the deviation of " administered " interest rate from the " market " interest rate, led to market distortions thus discouraging saving, investment and economic growth. In the succeeding decades of fierce application of financial liberalization, a basic question never asked how and in what sense did the " market " rate of interest reflected the true opportunity cost of financial resources and whether indeed deviation between it and prevailing rates of interest truly measured the magnitude of financial repression. Currently, the issue of financial repression seems more important than its relation to public debt restructuring. It is potentially at the heart of a corollary of Richard Koo's balance sheet issues and transcends the problem of temporary disequilibrium. The central problem of major economies is the uncoordinated and mismatched balance sheets of the real, financial, household and government sectors. Presumably it is the market that is to
Paper deals with an current state and a possible trajectory of Islamic finance. It argues that th... more Paper deals with an current state and a possible trajectory of Islamic finance. It argues that the essence of Islamic finance is risk sharing
The authors analyze the comparative behaviors of Muslims and non-Muslims by employing selected be... more The authors analyze the comparative behaviors of Muslims and non-Muslims by employing selected behavioral and experimental games to examine the level of adherence to the rules of behavior in the society. There is an increasing interest in behavioral economics and behavioral finance, which hold the potential of providing plausible explanations to the question of how emotions affect markets but also how to enhance constructive behavioral norms. The focus in behavioral finance is made on the impact of emotions, framing bias, heuristics and market forces on investment decisions, firm behavior, market regulation, and education policy. The experimental games are based one the premise that Islamic economy is a rules-based system and the compliance to such rules of behavior does not only improve economic performance and social welfare but helps also individuals in achieving higher potentials. Indeed, the adherence to a rules-based system has the potential of reducing cognitive and psychological biases. The selected set of seven rules (Capstone Rule, Cooperation, Contract, Property Rights, Reciprocity, Golden Rule and Trust) can also be used to examine market failures such as those related to negative externalities from narrow decision-making, and can be useful also in the design of viable solutions based on ethical, social and legal considerations.
This book investigates how people make decisions in transactional scenarios, and examines their c... more This book investigates how people make decisions in transactional scenarios, and examines their choices against the universal rules of prescribed behaviors.
It applies game theory to realistically understand the fallibilities of the human being and how markets and societies function, and use these observations to provide recommendations for effective behavioral governance for any corporation or any institution.
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Papers by Abbas Mirakhor
While the writings of al-Sadr were quite timely and important in his own time, understanding them at the present is crucial as the search for alternative socio-economic paradigms that can more effectively respond to the problems of humanity has intensified. In all of his discourses, al-Sadr was a first-rate logician who accorded logic and objective truth central and active roles without losing an opportunity to display the passion of his belief that Islam provides solutions to problems societies face.
Al-Sadr’s writings constitute an integrated and interrelated whole. Singling out a specific topic in exclusion of analysis of how it is related to his philosophy does not do justice to him, to his writings or to his readers. That said, this paper is a modest attempt to provide a brief commentary on a number of al-Sadr’s brilliant insights in presenting the theory and practice of Iqtisad (Islam’s vision of ideal economy). The point bears emphasis that this paper is not a commentary on the entirety of the views of al-Sadr’s on Iqtisad; to do some degree of justice to his views requires volumes. The paper instead focuses on some of his insights—those that economic analysis itself discovered years after him, with the purpose of indicating that the Iqtisadi contributions of al-Sadr and his genius deserve far deeper and more intensive scholarly treatment than they have received so far.
It applies game theory to realistically understand the fallibilities of the human being and how markets and societies function, and use these observations to provide recommendations for effective behavioral governance for any corporation or any institution.