When Russia defeated Iran in the early nineteenth century, the initial foundation for the idea of the necessity of development and compensation for underdevelopment in the face of the West among Iranians was formed. Iranian scholars raised the question: What is the reason behind this lag in their country? Amidst socio-political controversies about finding possible responses, the presence of mystical teachings and the emergence and consolidation of the discourse of mysticism in cultural and literary history were introduced as deterrent causes of progress and development. By proposing and preaching the teachings of asceticism, fatalism, detachment from the world, defeatism, the celebration of poverty, forbearance of hardship, and reliance on God, the discourse of mysticism weakened Iranians’ willpower to transform their destiny. In contrast, bureaucrats and elites insisted on the constructive role of literature and mysticism in crafting the historical identity of Iranians when the first Pahlavi government was going through the process of creating a nation-state. The current article seeks to scrutinize the views of two constitution-era intellectuals, Mirza Fatahali Akhondzadeh and Mirza Aghakhan Kermani, and two Pahlavi-era bureaucrats, Malik al-Shaara Bahar and Ali Akbar Dehkhoda, concerning this controversy. According to the findings of this study, first-generation intellectuals considered Islamic mysticism and its teachings to be the cultural cause of underdevelopment based on the ideas of liberalism and modernization. Another group of intellectuals, known as the integration group, sought to defend mysticism in the light of integration and indigenization, believing that cultural elements of the past did not contradict modernity. Instead, preserving and elevating them, in particular, Persian literature makes the society exalt and continue its historical and cultural identity in the process of its renovation.