Recent Islamic economics
It is appropriate to discuss a subject that has generated considerable literature in recent decades: contemporary Islamic economics. As a distinct discipline, Islamic economics emerged in the 1960s, but the subject has been an intrinsic component of Islam ever since its inception.
The fundamental sources of the Islamic order emanate from the Holy Qur'an, but also from Sunnah (teachings and traditions) of Prophet Mohammad, comprehensively called the Shari'a. Further, while there are substantial similarities between the Islamic paradigm and modern free-market (capitalist) economics, there are also some differences. Indeed, there is considerable literature that persuasively argues that the origins of “rational capitalism” lie in the early Islamic world (see Ghazanfar, 2009; Banaji, Gran, Heck, Robertson, Rodison, and Weaver): “The great cause of the rise of rational capitalism was not Christian at all — it was a secular scientific development taken over by Western Europeans from Muslim Arabs and Syrians” (Robertson, 45). Further, Islamic economic concepts provided the rationale that empowered medieval Europe to escape its centuries-old experiment with “Dark Age economics” (Heck, 9).Islamic economics may be described as a qualified extension of mainstream economics, but consistent with Islamic principles. While self-interest is a key component of the incentive/ motivation structure, it alone must not rule. Economic pursuits must not be the ultimate ends; the means—ends dichotomy of economics does not go far enough. So, unlike mainstream economics, Islamic economics is not independent of moral-ethical values. It follows that, as a social science, Islamic economics is a composite of positive as well as normative content; both are critical in analyzing economic phenomena and in deriving social goals and policy objectives. Thus, the Islamic scriptures suggest that the “homo-islamicus” is more than mere “homo- economicus.” In addition to guiding utility-maximizing behavior, individual behavior must encompass social utility as well.
And in this process, the state must actively promote socioeconomic justice, a goal not to be left as a byproduct of the free-market or “invisible hand” — i.e., the “trickle-down” alone approach is not acceptable. Islamic economy is a voluntaryexchange economy, but exchange must be a “humanized” blend of markets and morals. In that sense, Islamic economics is part of the integrative, holistic, interdisciplinary Islamic social order.Given this broad definition, what are the underlying assumptions and premises of Islamic economics? Viewed as mutually reinforcing, these may be noted as follows:
(a) Private ownership of property and humans are “free to choose.” However, private ownership is not absolute; a balance between individual freedom and social good is essential, and extreme individualism must be tempered by Islamic ethical principles. Such balance, though less well-known, is what even Adam Smith called for; he visualized the “invisible hand” functioning within a moral-ethical framework, guided by Providence (see Davis).
(b) Scarcity and needs/wants — as with mainstream economics, the means-ends dilemma is also fundamental to Islamic economics, but conditionally. The argument is that scarcity in relation to human wants and needs must be understood in the light of “holistic” rationality, inclusive of both economic and non-economic motivations.
(c) Desirability of economic enterprise — unlike early Christianity, working for a living is exalted throughout the Scriptures; it is part of the “calling,” a duty and an obligation. The work ethic is emphasized in the Holy Qur'an.
(d) Encouragement of material progress — within the prescribed constraints of private gain and social good, no amount of material progress is viewed as detrimental to society. But, material gain is not the ultimate goal. Yet, the pursuit of goodness and a virtuous life does not mean asceticism or denial of material gain.
(e) Cooperation and competition — the Holy Qur'an says: “Then strive together (as in a race) towards all that is good” (Holy Qur'an, sura 2, verse 148).
Pursuit of economic activities in a voluntary, competitive environment is part of one's “calling,” but it is a means to living, not life itself. The notion of human brotherhood implies that the proper pattern of relationships must be based on cooperation and mutual responsibility.(f) Interpretative flexibility of Scriptures — in economic matters, as in others, Islam provides considerable latitude and variety of interpretations. Indeed, the Holy Qur'an, as an evolutionary message, does not lay down an immutable system in economics, or in any other sphere of affairs. Aside from certain broad principles, all details are for society to determine, according to evolving socio-cultural conditions, subject to Ijtihaad (“dynamic reasoning,” literally means “interpretative struggle,” derived from the verb jahd, “to struggle,” and jahaad, “the struggle”) and Ijma’ (social consensus).
Furthermore, in an Islamic social order, humans are judged by their moral and spiritual excellence and not just by material affluence. Thus, there is no scope for a social arrangement based chiefly on economic possessions, and the concept of human brotherhood transcends any socio-economic stratifications. For the purpose of achieving a just social order, Islamic economics calls for several institutional arrangements, including (a) the institution of Zakah, (b) inheritance laws, (c) voluntary charity (sadaqat), (d) prohibition of interest (riba’), (e) role of the state, and (f) guidelines for appropriate economic activities and conditions governing ownership and use of private property (Ghazanfar, 2009).
How viable is Islamic economics in practice? While there appears to be a broad consensus among proponents as to its theoretical validity, there are divergent opinions as to operational efficacy. Such concerns are evident in a substantial critical literature that emerged in recent years. As early as the 1960s, an eminent Muslim scholar expressed reservations as to the prohibition of riba'; he argued, akin to the debates in early Christianity, that riba’ meant excessive interest, or usury, which may lead to exploitation, and thus, is forbidden; it does not refer to interest as practiced in modern financial institutions (Rahman, 1964; Weiss).
Similarly, a Western scholar of Islam has argued that “a modern progressive income and property tax system includes in essence more Zakah than the Islamic injunctions intended,” and those modern tax systems may achieve the goal of an equitable income-wealth distribution, as part of an Islamic fiscal system (Weiss, 55). Further, some Muslim scholars warn that introducing Zakah and abolishing interest cannot be equated with establishing an Islamic economic system. These same scholars point out that policy-makers’ concentration “on just the two elements of Zakah and interest-free banking to the exclusion of the fundamental structural elements of Islamic reform” amounts to a “mixed-economy with some Islamic whitewash” (Weiss, 56, quoting from Naqvi, et al., 1984). Another scholar argues that we must “abandon” the “obsession” with the “mythical” elements of Islamic economics, and “pay greater attention to issues of poverty alleviation, redistribution of wealth and resources, and Islamic forms of government” (Muqtedar, xvii).
Among the strongest critics of Islamic economics, however, is Timur Kuran, a recent “modernist,” trained in the West but with roots in Turkey. He argues that “mainstream Islam has been, and remains, supportive of markets, technological creativity, and material prosperity.” Yet, he suggests “economic globalization has benefited the West and harmed vast segments of the Islamic world,” thus the arguments for “economic separatism” and “mistrust of Westernization, even into antagonism to modernity” (Kuran, 2002). Among Kuran’s works is a recent book, entitled Islam and Mammon: The Economic Predicaments of Islamism (2004). Essentially, he argues “that the doctrine of Islamic economics is simplistic, incoherent, and largely irrelevant to present economic challenges” (Kuran, xi). Further, he asserts, “the real purpose of Islamic economics has not been economic improvement but cultivation of a distinct Islamic identity to resist cultural globalization” (Kuran, v).