ABSTRACT
Modern Economics is based on an axiomatic deductive methodology and claims to be a scientific set of laws which are universally applicable. In fact, all of social science is based on the study of actual experience of human societies, and is therefore necessarily relevant only to a particular historical context. As economic, political and social institutions evolve and change, so the relevant economic theories also evolve and change. In the light of this understanding, we study how Islamic economics itself has changed radically from the first to second generation, in response changing historical circumstances. The demonstrated failure of neoclassical economics to respond to modern needs calls for a revolutionary approach to a third generation of Islamic economics. Modern economics is built on foundations of competition, greed and individualism. These principles have created repeated economic crises and brought the world to the edge of an environmental disaster. By building on Islamic principles of social responsibility, cooperation and generosity, we can create a radical alternative, which is desperately needed today. This chapter spells out the key building blocks of an entirely new approach to a methodology for a third-generation Islamic economics.
