National income accounting is devise to value the total transactions in the economy in terms of spending variables. These include consumption, investment, government spending and net exports are treated as a form of investment (when value of export- import is positive) and as leakage when this value is negative. This value of accounting of transactions from the expenditure or supply side is equated to the income or demand side in terms of total value of wages, replacement demand for firms and indirect taxes levied on goods and services, property and similar usages held by the private sector. This value from the demand side equating with value of Gross Domestic Product (or GNP) on the supply side in nominal or real terms, assumes that the size of the economy is exactly in tandem with the size of the national output. 

But for a critique of this very elementary concept, let us go to the General Flow of Goods and Services and consider first unemployment in it and second, ecological social costs in it. The demand for factors (say employment L) in the production of goods and services in the General Flows of Goods and Services is given as a Derived Demand as follows: L=D(K,Q,p,w,r), where K denotes capital expenditure; Q denotes output (GNP, GDP); p denotes price level; w denotes wage rate; r denotes cost of capital. The wage bill then is w.L. In a similar way we can treat the derived demand for capital as the only other substitutable factor of production. The total capital cost is then r.K. The total cost of production related with the aggregate production function, C=wL+rK+A, A being fixed cost, is distributed fully among factors of production and these become total spending in the economy in the various forms as mentioned above.

Since economic growth is a prime objective criterion in this perspective of the General Flows of Goods and Services, this objective can be translated as follows: Max. Q = f(L,K), subject to C=w.L+r.K+A. Furthermore, a technological condition can be introduced by writing K/L = a(t), a function of time. Here other complicated forms of relations can be considered, such as the Koyck adjustments and the accelerator model on capital stock adjustment. But no new insight is presented by such complexities for our purposes here.

The above objective criterion presents a fully neoclassical picture on aggregate production function and production isoquants. The underlying assumptions of marginalist substitution, opportunity cost of choosing technology between L-intensive and K-intensive types and the properties of aggregate production function, are all present. Even when an input-output version of national income and expenditure accounting is supplanted, this does not change the picture once we assume fixed technical coefficients to represent the type of capital and labour substitutions that are induced in the system. Examine the fundamental balance equation system in matrix form for the input-output model: (I-B).X=x, where I is identity matrix; B is the matrix of fixed input-output coefficients; X is the vector of total output; x if the vector of final demand. Since (I-B) remains fixed, by inversion of this matrix we note that X is a scalar multiple of x. But since x denotes the factor costs, C=wL+rK, therefore x is determined by the same conditions of allocation of C in such factors as are found for the neoclassical marginalist substitution case. Consequently also, the production of X is found to be governed by the same neoclassical properties of the aggregate production function. Nothing changes between the criterion of constrained maximization of aggregate production and the criterion of intersectorial allocation of output through the input-output model with fixed coefficients.

Now introduce a social variable of the type S=S(Q,K,L,p,r,w,P), where P denotes policy variable reflecting a range of `ought' statements that arise from moral, ethical, legal, textual and institutional references to policy formulation. P is thereby a discursive variable; but this is not all. Note further, that in the General Flows of Goods and Services, P and the other variables are recursively generated through the effect of the S-function. The direction of the circular causation and continuity effects among the variables results in the following interrelationships:

k(i)->S(i)->Z(i)->k'(i+1)->S(i+1)'->Z'(i+1)-> etc. k(.) denotes the knowledge-variable (functional). Z denotes the vector of socioeconomic variables. i denotes the number of interactions among agents in the institutional perspectives of formulations and recreations in the S and Z variables. Thus, k', Z' and S' denote the recursed values of these functionals (variables) with the process of interactions. The speed of such relations depend upon the speed of formation of the primal k-values at the level of sectorial productions and their factor market and pricing relations. The net result of all these is the gain in social well- being function that reflects in the S-variable. Hence, S-functional is primarily affected by k as by P which depends upon k. Through this functional and recursive relations, Z itself is k-dependent. The entire system becomes knowledge-induced, and the intensity of k-values describes the process of change in all the other variables and functionals over every progress of the interaction i-index.

With the intensity and speed of the k-values now in place in the circular flows of goods and services, the total allocation of cost of production and hence spending in the economy comprises the usual factors but most importantly the department of knowledge- formation. The value of national output is then given by, Q=C(k)+I(k)+G(k)+(E(k)-M(k))+S=(w.L)(k) + (r.K)(k) + A(k). E(k) denotes export value; M(k) denotes import value; and all other symbols are as they are usually understood in national income and accounting relations. But note that each of the variables is now k- induced. Also A(k) is now k-induced and becomes like the residual functional in the aggregate production function with education variable in it that was discussed by Denison, Grilichez and others in the literature on human capital formation and economic growth. We will let A(k) include the payments (social benefits) incurred in terms of S(k). S appears with the spending variables as the monetary value of all sector spending in the primal department of knowledge formation

But what does it mean for any of the macroeconomic variables to be k-induced? This has no meaning, for knowledge-formation in solely a cumulative effect of micro-level actions and responses. Otherwise, the moral and ethical effect of agent-agent interactions, post evaluation of Z and the formulation of P, cannot be behaviourally possible. Thus, the above-mentioned knowledge- induced macroeconomic identities bear no meaning. The interactive nature of the knowledge-induced circular causation and continuity flows cannot even define such aggregative forms as shown. The S- functional will capture some of the interactive effects among C(k)INTI(k)INTG(k)INT(E(k)-M(k)) and so will also A(k) include some of the payments to labour and capital. INT denotes mathematical intersections. Such interactive results would then make the valuations of spending and factors as shown, to be under- estimations. With the knowledge induction in this substantive sense of k-formation and its pronounced effect on the Z and S variables, all aggregate valuations must start from microeconomic foundations of the ethicized markets, goods, production, preferences etc. (See other chapters in this lecture series). The points on the incommensurability of the General Flows of Goods and Services with the nature of knowledge-induced benefits as diffusive as these are, is made even besides the usual argument made that the General Flows of Goods and Services cannot account for such impoendarables, despite the fact that they play so fundamental a role in generating X-efficiencies in the economy.

Now to return to our two cases, first namely k-effects on employment, we note that P, Z and S as induced by considerations on the issue of employment (L), must generate complementarity -- not marginalist substitution -- among the factors in all diversities. This at once also affects technological choices. Thus the concepts of opportunity cost, production function, resource allocation and pricing in all markets are all substantively changed at the microeconomic level. One such valuation method is formalized in other chapters of this lecture series. It is to simulate the social well-being functional given by S(Z,P)[k], k primarily defining all variables and functionals that appear in continuously recursive manner. The derived relationships are the feedbacks among all the variables through the recursive function of k. As an example we will have the derived relations among many others, of the form, L=L(Z-L,P,S)[k], k'= k'(Z-L,P,S)[k], L'=L'(Z'-L',P',S')[k'], etc., where accented variables denote recursed values through feedbacks in the process of simulating S through continuous knowledge production through such feedbacks. Z-L denotes all the socioeconomic variables of Z except L, although in greater details lagged values of L and hence other variables can be taken up, etc. 

Now since all of the above valuations are meaningful only in their microeconomic and sectorial sense, which are then extended economy-wide, therefore, the effect of P-variables are only relevant at these levels and are then evolved from the lower to higher levels of aggregation by the self-same dynamics as explained here. For this reason, there is no macroeconomic relevance of monetary, fiscal, human resource, incomes, trade and developmental policies at the solely macroeconomic level. There is no viable concept of aggregation from the microeconomic levels to the macroeconomic levels. There is also no disaggregation relevant from the macroeconomic levels to the microeconomic levels. The valuations are disparate in these two contexts. In the interactive knowledge-induced sense of simulation, it only matters how decisions are formulated and policies are recursed in the midst of complementarities among the Z-variables and other social prerogatives that are brought forward by the k-induced P-variables. The issue of employment L is taken up in this microeconomic and specific technologically induced sectorial sense. In this way much of the conflict and incompatibility between the aggregate deficiency-of demand unemployment and structural unemployment, consequential effects on price level and inflation-unemployment tradeoff, are eliminated. Governments appear now as an agent among others in relation to the interactive framework of decision making. They do not control market and private sector actions and responses. Governments simply oversee and guide the directions of P and S through promoting the departments of k-formation in the private sector and at the microeconomic levels. The concept of such knowledge-induced production and social well-being objectives is truly a grassroots approach to total development.

As our second example, that of ecological well-being functional in the same kinds of interactive relations, we see that ecology is now treated as `globally' relational medium for generating intertemporal social well-being. The methodology of simulation of social well-being with all the recursive feedback interrelationships, once again applies. Except now we note the intertemporal nature of the recursions.

In the essentially knowledge-induced interactive circular causation and continuity framework, it is irrelevant to talk about static systems. It only means to say that historically we can examine a certain range of feedback relations and the experience of interactions-integration (social consensus) and evolution (growth). But taken either at the very microeconomic level and then evolved to higher levels of aggregation through the knowledge-induced effects, the simulative system of the interactive knowledge-induced system must necessarily treat all such relations to be dynamic in essence. But intertemporality introduces yet another refinement to this permanently knowledge-induced dynamic concept. This is the predictiveness of recursed relations as these are evolved over time and knowledge.

First, now there can be no distinction between knowledge treated as interactions in the continuous sense and time. The latter is simply a cognitive creation of knowledge and time is not primordial, except when time and knowledge are primordially equated in there Stock form (see other chapters of this lecture series). Second, to treat predictiveness in the evolutionary sense, we must consider the creative evolution of the interactive-integrative- evolutionary dynamics as a positive flow of knowledge relations taken up in different categories. That is, for the simple case, we will predict by means of a high, medium and low knowledge formation cases. The last case is a reversal to neoclassicism and its prototypes. This will comprise much of all of mainstream economic, social, political and scientific doctrines. Now the condition of recursed steady states and adaptive states in the k-values will exist for each of the three categories. Indeed there is also sense of recreative essence of the category in a knowledgeless world- system (that is in the category that is devoid of interactions =neoclassicism and its prototypes). Interactions leading to integration (=social consensus) through and within states of creative evolution, must now endow the k-values with convergence values. Hence we come across the concept of moving knowledge- induced equilibria that charaterize the knowledge-induced world view taken up at different levels of k-intensity.

Now in the convergence region, which is a localized region of the moving equilibrium points, k-functional becomes adaptive. Alongwith this the Z-values, P-values and S-values become adaptive and convergent as well, in accordance with the respective categories. But the same is not true `globally' (everywhere in the intertemporal plane). Human experience is not linear. There are periods of history where communities rise from ignorance to knowledge; when they revert to ignorance from knowledge; when they proceed on in various categories of knowledge (hence intensities of k); and when they perpetually continue on in various categories of ignorance. Only in the localized sense of such a global process can there exist a temporary and moving equilibria, which is at best of the expectational type.(Boulding, Grandmont, Choudhury) Intertemporality as a predictive occurrence in the knowledge- induced universe defines the locus of such expectational and dynamic equilibria.

In the sense of valuation mentioned above, the use of simulation models for forecasting is possible over given intertemporal histories of categories. Consequently, different Z, S, P and k-values will emerge from these intertemporal categories. The function of the Department of Knowledge Formation now becomes so very important to define the kind of intertemporal history that will emerge. Hence, the reliability on predictiveness of the variables and functionals is directly a function of k-formation and its intensity. Macroeconomic forecasting not being able to answer the microeconomic functionals and vice versa, forecasting of economy-wide variables and functionals, such as wages, prices, employment, spending, etc. in specific sectors will be possible if primarily the interactions, integration across knowledge evolutions primarily causes the k-values to become adaptive.

The other questions of economic stability, spending, employment and economic growth naturally arise with regards to the nature of the knowledge-based politico-economic order. In all of these, the principal microeconomic foundation of all politico-economic activities suggests that the principle of universal complementarity (see other chapters in this lecture series for details) must govern resource allocation. This is the cause and effect of the knowledge- based politico-economic order. It is also the one that simultaneously exists with the phenomenon of ethical endogeneity due to knowledge induction in the total Islamic world-system. Now with the principle of universal complementarity between goods and services, the same directional shifts in demand and supply curves, will stabilize prices within narrow bands of variations.

The marginal role of governments acting by itself in public functions, except in concert with the private sector embedded in an ethicizing market, also reduces the role of macroeconomic monetary, fiscal, trade, incomes, human resource development and other macroeconomic policies. Instead the predominance of ethical transformation of the market order within the knowledge-inducing system as pronounced by Shari'ah and brought about by the pervasive activation of the Shuratic Process substantively understood, happens to be the primal goal of Government. Such marginal but important presence of government principally taken over by the Department of Knowledge Formation for ethicizing the market economy of Islamic political economy, means that debts and deficits will be low and declining with the advance of the ethical market transformation. Here too we find that economic stabilization becomes an built-in characteristic of Islamic political economy. 

The issue of employment and economic growth is a matter of firms to decide on the basis of the cooperative nature of enterprise. The instruments of Mudarabah-Musharakah and their other varied forms together with the elimination of interest rate, wastage and establishing the institution of wealth taxation (Zakah) and its distribution, all combine to establish the general equilibrium relations of the simulative objective criterion of the Islamic political economy. In the midst of such an entrepreneurial perspective, workforce is not necessarily on the basis of employment, which is a phenomenon of industrial culture generated on the basis of a strict capitalist and worker segmentation of the production and ownership milieu. While wage rates do exist in Islamic political economy, this is always and everwhere to be combined with share economy. In the process of ethical transformation of Islamic political economy, there must inevitably come about an inverse relationship between wages and ownership shares. Hence entitlement and empowerment are among the goals of Islamic political economy.

The concepts of economic efficiency and factor productivities are now generated out of complementarity among such factors, which then leads to diversification and price stability as mentioned above. In turn the cost is held low as factor price stability is maintained through the force of complementarity and diversification received between the sectors, factor markets, workers and owners of capital and technological choices. Economic growth now means the return received by factors of production in the milieu of such concepts of economic efficiency and factor productivities. While the dynamic basic needs approach to markets, consumption, production, distribution and ownership in Islamic political economy will not necessarily generate exorbitant levels of nominal incomes, yet the stability of real incomes is far more promising and the uncertainties of a debt-ridden economy is receded. Certainty is the gaining consequence. This feature along with the distributional aspects that translate resource ownership and usage into social justice; the purpose of attaining Shari'ah goals; the attainment of economic stability; resulting certainty that these bring both on the side of moral and material security, and cause further creative evolution of the Islamic world-system to assume, all spell out the central attributes of Unification Epistemology at play in the interactive-integrative-evolutionary order of Islamic political economy replicating this central methodology of Shuratic Process in lived experience. Economic growth is just one subset of the social well-being system that is brought about by the knowledge induction. Its process of realization and change is explained by the creative evolution, which in turn brings about steady and predictive features of the changing valuations in Islamic political economy as the intensity of knowledge proceeds on.

There is an apparent question that the depiction of Islamic political economy as a process of change towards increasing ethicizing of markets and the marginalization of government role as a sole role player, is bound to create in the mind of many Islamic economists and political scientists, who think of the Islamic State as a powerful polity for enacting change by rule of Shari'ah. The question is how then do we treat the meaning of Bait al-Mal and the role of Zakah as a spending variable in Islamic political economy, when the fiscal role diminishes with the advance of the ethical transformation, this being the sole most primal state of the Islamic State?

First, Bait al-Mal or the Islamic Public Treasure is not a welfare institution and Islamic State is not a welfare State as many Islamic economists are prone to characterize it. This is because the cooperative nature of the Islamic political economy across all echelons starting from the grassroots, makes Government first a principal overseer and promoter of the knowledge transformation process in the Islamic political economy as a great human cybernetical system guided by evolution of Shari'ah under the Shuratic Process methodology as this is substantively understood in the socio-scientific sense, not merely in the political sense. Thus, the Bait al-Mal plays a central role in such a function of ethical transformation of the private sector with its markets, sectors, entrepreneurs and agents. Its power of enforcement of Shari'ah rules governing Zakah and primary resource acquisition and allocation matters is also to be seen as part of the moral suasion and enforcer of rights and privileges in the participatory and joint ownership of all kinds of assets in which Bait al-Mal becomes a principal role player both as a stakeholder and an overseer. But the actual revenues of Bait al-Mal are no different from the private incomes held in safe-keeping banks under the protection of the Central Bank. The Bait al-Mal itself cannot logically play a sole role in the disbursement of its revenues, when it is already in cooperative joint ventures with overseeing power of Shari'ah to guide the private holders of the resources of Bait al-Mal to collectively determine the permissible directions for the disbursement of funds. The Government does not collect nor does it need to collect general revenues for projects of its own except in the most extraordinary cases, such as of defence, war-time acquisitions and internal security. But these are not the functions of Bait al-Mal anyway except in the last case, when income security is involved. Then too the process of overseeing and correctibe through the channel of participation and ownership applies. In this way then, Bait al-Mal's revenues are simply revenues of private holders that are re-spent in social directions. Such social projects essentially arise in the private sector within ethicizing markets and are cooperative joint ventures of the private sector agents, starting from the grassroots up to the various echelons including Bait al-Mal as several other agencies of the Government, e.g. the Hisbah, the social regulatory institution of markets in classical Islam.(See another chapter in this series of lectures) 

Now Zakah as a category of collections and disbursements by the Bait al-Mal is treated in the above way. It is to be remembered here that since the Islamic State is not a welfare state but has the objective of attaining certain levels of social well-being on a continuous basis, therefore, a primal function of Zakah funds is productive transformation of the needy and the like, through a process that invigorates the grassroots and brings it into bonds with other echelons of productions and ownerships, rights and privileges, entitlements and empowerments. Social justice is thus attained simultaneously in the midst of productive transformation in the Islamic political economy. This is a sheer reflection of the principle of universal complementarity and is enabled by treating Zakah as an instrument not of welfare but of well-being. This is also the attention paid by the Bait al-Mal in its collection and disbursement of funds. The same must also take place through the Islamically ethicizing market order, its private sector, entrepreneurship etc. if productive transformation is to be attained. But there is a portion that is spend on the sick, needy, debt burdens, etc. when Zakah becomes a transfer payment. But such a payment entering the S(k) functional as mentioned earlier, makes the effects of such Zakah-related Zakah disbursements as social spending with their ameliorative effects in society at large.

The fact that social well-being, productive transformation and self-reliance through entrepreneurship are the central essences of the Islamic political economy, in which the Bait al-Mal as the whole of the Islamic State is premised, can be seen from the treatment of such matters during the Islamic State of Madinah under the guidance of the Prophet. This is the Qur'anic narration of the relationship that took place between the Ansars (Madinites) and the Muhajirin (Makkan evicts). The fact of the Islamic emphasis on market order and self-reliance is to be found in the Prophet Muhammad's ahadith. Thus although the Bait al-Mal was first established during the Prophet's time in the Islamic State of Madinah, there is no mention of its role as a state authority to collect and spend resources. In other words, whatever is earned income is to be returned to the earner after Zakah (and some other taxes under need and circumstances) has been deducted to finance specifically prescribed functions in society (as are recommended respecting Zakah). But in this case too, productive transformation is upheld as goal and that means private sector activities to the foremost in the midst of ethicizing markets brought about by the Department of Knowledge Formation according to Shari'ah in the midst of the Shuratic Process methodology.

In the latter days after the Pious Caliphs, the misconception of Bait al-Mal and government-centric developments in the hands of autocratic Muslim governments and political-mongering rulers destroyed the essential outlook of the Bait al-Mal, of the Islamic State. In present times, although some Muslim countries, like Iran, Pakistan, Saudi Arabia, Malaysia have emphasised collection and disbursement of Zakah, this has been once again looked upon as a fiscal measure that is the right of the State to indulge in. Many of the consequences of such unnecessary impositions have resulted in a failure to transform the hearts and minds of the general public to the high alter of Zakah as the moral fund that brings about material benefits, social security, social well-being both to the giver and the receiver as the Qur'an mentions. This last essence is the function and goal of a true Islamic State through its Department of Justice.

The fiscal and along with it the active monetary and other macroeconomic policies as we have come to know them from Keynesian macroeconomics and monetarism, have no role to play in the Islamic political economy. In their stead, what holds is a progressive aggregation by pervasive application of the Shuratic Process methodology in the various evolving segments of the Islamic economy. Under the knowledge-induction of this order, the nature of stabilization comes about pertaining to the specific knowledge trajectories and their histories. The recording of the economic and social valuations in the Islamic political economy is the function of the Islamic statistical and economic departments. Such departments are not independent of the processes of change and find themselves in the active interactive-integrative-evolutionary process of Shuratic transformation as an institution. Forecasting and prediction microeconomic policies and their guidance are all conducted within such milieu where actual human beings and agencies participate to interact, integrate and evolve together. Mechanical forecasting, prediction and policy recommendations are treated as blueprints for guidance that are subject to revisions as the human decision-making and post-evaluation process of the socioeconomic performance proceeds.

Next we turn to the balance of payments stabilization issues. We have shown that like all other socioeconomic variables and functionals of Islamic political economy in microeconomic and economy-wide sense, the balance of payments, E(k)-M(k), also depends on the k-values. What does this mean in cognizance of the fact that the world outside the Muslim world even in the best Islamic state of the latter, would remain different from the Islamic ways? There are a number of implications here. First, as the world goes into cooperative states, expressed through dialogues, international development organizations, conferences and interchange of ideas, the impact of the knowledge-based world view in trade will find expression. This will be to induce in the world economy the wisdom of transacting on real-sector activities as opposed to speculative ones, the wisdom of participatory decision- making in production, consumption; the nature of and ways of attaining simultaneity between social justice and material happiness (=social well-being); the wisdom of growing along dynamic basic needs regimes of development; the wisdom of integrating the grassroots as an Idea in world development, trade and financing; the nature of participatory transformation through the academic and institutional understanding of ethicized markets venues, the nature of goods, the endogenous nature of ethics and the required re- orientation in politico-economic thinking globally. All these should be possible in a world that is increasingly making the global fora as the media of understanding.

Next, even in the best of times, the aim of the knowledge based trade, development and financial harmonization must be among the Muslim countries forming an Ummah (conscious world nation of Islam). This agenda for change too is in accord with the present direction toward trading and economic integration blocs. The Muslim organizations and academics have for long now clamouring on the concept of Islamic Common Market, Islamic Economic Cooperation and Development Cooperation. The harmonization of the knowledge-based agenda for Islamic transformation will necessitate the kind of micro-orientation of Islamic political economy to be built into the building blocks of trade, development and finance among Islamic countries. Here too the increasing marginalization of speculative ventures while moving collectively into Shari'ah oriented directions and using the full context of Shuratic Process as substantively developed in these series of lectures, will pave the way to the micro-organizational and academic understanding of valuations of trade (i.e. E(k)-M(k)) in the nation's and the Ummah's balance of payments. The gain on this front will essentially oppose the opposition of the Occidental ways of understanding macroeconomics and balance of payments, development, finance, real sector activities and economic integration in te global order. The concept of globalization into a venue of objective global social well-being, with particular emphasis on the Ummah, large, diverse and rich in resources and markets as it presently is.

The other world outside the Ummah cannot but condescend to the ways of trading based on the k-induced micro-orientation to the economy-wide blueprint. It would be better if the world would also learn from such transformation and acclaim them, absorb them, and apply them to their own transformation processes. Then there would exist sufficient urgency and reason to introduce such comprehensive studies of Islamic political economy in substantive terms at the highest academic and applied levels in all countries. Development organizations will then be formed or older ones reformed to abandon old ways of relating on the basis of what presently is the continuing last two hundred years of Eurocentricity in the globalization process. The global Shuratic Process as the methodology of understanding and applying external sector reformation under the micro-orientation of grassroots change, will be realized firstly at the intellectual levsls followed by community aplications and then national, Ummatic and global applications.

Stabilization of the balance of payments based on the transactions between nations standing on knowledge based means that speculative ventures are abandoned for real sectorial activities. The grassroots focus together with the DYNAMIC basic needs approach to development, consequently transacting on the forms of goods and services, together with the internal price stabilization of the regime of universal complementarities (mentioned above), will all together stabilize the external sector. Presently, much of the immensely debt-ridden economies of the Muslims countries without exception, is due to the dependency on unwanted modes of capital- intensive developments on western imports. This has left both a sorrowful erosion of purchasing power and the utter loss of efficiency, productivity and appropriateness of technology for these countries. It is least to say that the teeming populations of needy have fallen out of esteem and human dignity in the scale of social justice. The globalization of today has no meaning for them. There is no instrument there to harmonize the grassroots and the consequential dynamics with such a capitalist globalization process.

As we have explained earlier, in the knowledge-based world view, the principle of universal complementarity and the real- sectorial activity oriented transformation using money and ethicizing markets, brings about a complementary nature between the use of monetary and spending policies. Consequently, the tradeoff found in macroeconomics between these policies, with monetary policies being more effective in flexible exchange rate regimes with capital mobility and fiscal policies being more effective in fixed or targetted exchange rate regimes with capital mobility (Mundell-Fleming-Swan models), cannot have any meaning in the external sector dynamics of Islamic political economy.(Choudhury) Indeed now there is no relevance of the interest rate relations that underlie the Is-Lm relations that are used to explain internal and external sector stabilities with and without flexible exchange rates. The replacement of interest rate as a monetary policy variable by the average profit-rate or the average profit-sharing rates in Islamic inter-country project relations within the Ummah (Choudhury), is not a mechanical exercise in the dynamic equations of stabilization of external sector relations of the Islamic political economy. Instead, they are brought about by the recursive relations of the simulation objective criterion of social well- being. In this all the knowledge-induced socioeconomic and policy variables and functionals are developed by reference to the Tawhidi Unification Epistemology and its implications as found to be formalized in socio-scientific analytics and in organizational context with the applicable instruments and diversities under Shari'ah (=Shuratic Process). The formalization has been done elsewhere.(Choudhury)

The nature of micro-orientation of aggregate economy-wide valuations and the central nature of knowledge-based centricity in all of these, is not the way that Islamic economists have for a long time now examined the macroeconomic consequences of an Islamic economy. Islamic economists have continued on to borrow models of the Keynesian type (this author does not exonerate himself in this in his earlier works), the monetarist type, Tobin-Brainard models and open-economy stabilization models, to come up mechanically with stabilization models without the rate of interest and invoking exogenously the ethical assumptions, such as fair distribution, price stabilization, neutrality of debt, etc. No fresh intellectual grounds have been broken beyond such mechanical applications of existing macroeconomic approaches to explain Islamic macroeconomics economics. The sorry state is the fact, that after over sixty years of Islamic economic thinking, many are still clamouring for this self-same futile directions and orientating the minds of generations uncritically in the direction of accepting such analytically meaningless approaches to the study of Islamic socioeconomic phenomena. The glaring futility is being reflected in published papers, university curricula, books, journals dealing with Islamic economics. Islamic financial and development institutions and the national governments find themselves with no authentically Islamic alternative to change, even though a few of them would like to move in this direction (Iran, Sudan, Malaysia) 

Epistemologically, things have gone wrong with Islamic economics in its inability to FUSE in Tawhid as an analytical process explained by the universally interactive-integrative- evolutionary methodology of unified reality in the lived experiences of the socio-scientific order. The Shuratic Process as the cause and effect of the underlying knowledge flow process derived from the Tawhidi Stock of Knowledge, is totally missed out. Consequently, the historical processes that underlie the essence of change, transformation in the Islamic world-system, the lock-stock- barrel for which are to emanate from the Qur'an, the Sunnah and the experience of the Prophet and the Pious Caliphs in the ESSENCE (= meaning of the Prophet's flight to the region (tree) of complete knowledge, Sidratul Muntaha, and not the human details) of the MADINAH CHARTER, have not been the intellectual inquisition of the truly searching Islamic mind. How the analytics of Akhira and Tawhid are integrated with the study of behaviour, institutions and change have not seriously swayed the Muslim minds for a long time now, after the grand days of such intellectual feats of the Islamic scholastics.

In the national income accounting sense, the same Tawhidi Unification Epistemology has been explained in this chapter to ground thought on the spending and money sides of the equation for real sectorial activity in a web of interrelationships, whose aim is seen here to be not growth, but social well-being. Growth as output is taken up within the social well-being simulational concept to interactive develop a set of derived recursive relations in the knowledge-based valuations. This step reflects the simultaneous attainment of interactions and integrations through the process of convergence in the knowledge flows and the induced socioeconomic variables/functionals. The perpetually recreative evolution of such orders at higher levels of knowledge evolution is the evolutionary stage. Within all these dynamics is included not mechanically, but substantively the relational order of the Shuratic Process in terms of its unique circular causation and continuity model of unified reality as the methodology res-extensa. Thereby, the corresponding instruments, institutions and policies are taken up in the same light. Across all these is the abiding nature of ethical endogeneity which in turn is possible by substantively holding on the Principle of Universal Complementarity within diversities. Such a unique methodology as derived from the Qur'an and Sunnah and then tied down to the lived experience of national valuations, must analytically, logically, quantitatively and conclusively lead to the nature of micro-orientation to aggregate economic-wide valuations. We then cannot force in a separate macroeconomic category, just because `modern' economics says so. The methodological and institutional approach Islamic political economy in this valuation exercise of spending, money and real sectorial activities must remain both epistemologically sound and consistent in terms of their application to socio-economic reality in a fast changing world of mind, heart and actions. These comprise the Islamic belief. Yet at the end having said all these, the real rise of belief in the Islamic world-system is neither the work of analytics nor of techniques. It is the inner blossoming of what is to be globallly sublime.

Consider the following verse concerning the pervasive micro- nature of spending arising from the reformation of the inner self toward the Islamic State must mould the preferences, using its Department of Knowledge Formation: "The parable of those who spend their substance in the way of Allah is that of a grain of corn (micro-orientation): it groweth seven ears, and each ear hath a hundred grains. Allah giveth manifold increase to whom He pleaseth (multipliers with the micro-orientation): and Allah careth for all and He knoweth all things (pervasive Tawhidi Episteme of Full Stock of Divine Knowledge on which is based the Shuratic Process)."(Chapter II, verse 261)

Examine the following verse reflecting on the knowledge-based micro-orientation on trade and benefit to mankind: "Behold! In the creation of the heavens and the earth; in the alternation of the Night and the Day; in the sailing of the ships through the Ocean for the profit of mankind; in the rain which Allah Allah sends down from the skies, and the life which He gives therewith to an earth that is dead; in the beasts of all kinds that He scatters through the earth; in the changes of the winds, and the clouds which they trail like their slaves between the sky and the earth; -- Here indeed are Signs for a people that are wise."(Chapter 2, verse 164). Every part of this verse invokes the micro-orientation of the Tawhidi knowledge-inducing observations. The macroeconomic order being morally benign, cannot reflect such an ethical world view.