Islamic Economics- A Comparative Review Meaning, Nature and Scope of Islamic Economics,The Origin of Islamic Economics

Islamic Economics- A Comparative Review

Islamic Economics- A Comparative Review

Islamic Economics- A Comparative Review

  1. Meaning, Nature and Scope of Islamic Economics
  2. The Origin of Islamic Economics

” And when the Prayer
Is finished, then may ye Disperse
through the land,
And seek of the Bounty
of Allah.
Al-Qur’än, Sürah LXII. 10
“No one eats better food than which he eats out of the work of
his hand.’
The Prophet Muhammad (peace be upon him) (Bukhari)”

1. Meaning, Nature and Scope of Islamic Economics

The main objective of this section is to explain the nature and scope of Islamic economics and to offer a comparative analysis with modern secular economics. To me, Islamic economics is a social science that studies the economic problems of a people imbued with the values of Islam. This is not to suggest that Muslims are prevented from studying the economic problems of non-Muslims. On the contrary, those who are imbued with the values of Islam are required by the Shari’ah to study the economic problems of a non-Muslim minority in an Islamic state in particular, and of humanity in general. So this apparently narrow definition has a wider implication.

Besides, this definition of Islamic economics is in striking contrast to the modern definition of economics which is a “study of mankind in the ordinary business of life”. To put it more clearly in the words of Professor
Robbins: “Economics is a science which studies human behavior as a relationship between ends and scarce means and which have alternative uses.” The aptness of this definition is not incontrovertible, but it provides, at any rate, a very good description of the subject matter of modern economics which is primarily a study of a man living in a society. If sociology is a genus, economics is a species of the same genus. No doubt,
Islamic economics is a part of sociology. But this is a social science in a restricted sense. Because here we are not studying every individual living in society. Islamic economics is the study of man—not of an isolated individual but of a social individual having faith in the Islamic values of life. Like modern economics, Islamic economics does not study the world consisting of men like Robinson Crusoe, because the phenomenon of exchange, either as a factor as a possibility, is to be included in both schools of economics although Islamic economics deals with the provision of “non-exchangeable (i.e. transfer payments) which frequently exist
under the conditions of relative social concern and moral responsibility as opposed to indifference and selfishness.”

Islamic economics deals mainly with problems involving money. There is, indeed, an increasing number of economists who endorse the view that economics is concerned with that aspect of human behavior which is concerned with money-getting and money-spending. But classical writers and their present-day followers are inclined to go behind the money veil and to depict the economic problem in non-monetary terms. The fundamental economic problem of mankind owes its origin to the fact that we have wanted and that these wants cannot generally be satisfied without the expenditure of our limited resources of human energy and material equipment. If we had unlimited means for the satisfaction of all kinds of wants, the economic problem would not have arisen. So far as this basic problem of scarcity is concerned, there is hardly any difference between Islamic and modern economics. If there is any difference, it lies in its nature and volume. That is why the main difference between these two systems of economics can be found with regard to the handling of the
problem of choice. The question of choice arises from the fact that our resources are limited so that the satisfaction of some kind of want is at the expense of some others want which must go unsatisfied. The eternal
the conflict between the multiplicity of wants and scarcity of means forces us to make a choice between our wants, to fix up a list of priorities and then distribute our resources in such a manner as to be able to secure maximum satisfaction of wants. In modern economics, this problem of choice is greatly dependent on the whims of individuals. They may or may not take into account the requirements of society. But in Islamic economics, we are not in a position to distribute the resources in any way we like. There is a  serious moral limitation imposed by the Holy Qur’an and the Sunnah on the powers of the individuals in this respect. The entire circle of economic activity may be explained with the help of the following two charts:

Two chart of Islamic Economics

Thus to sum up, in Islamic economics, we study not only the social individual but also a man with the religious bent of man [A(1)] whereas in modern economics we are primarily interested in people living in society [B(1)]. It is because of a multiplicity of ends [A(2)/B(2)] and scarcity of means (A3/B3), that the economic problems have arisen (E). This problem is basically the same in both modern and Islamic economics. But the difference arises with regard to choice. Islamic economics is guided by the basic values of Islam [A(4))] and modern economics, based on a capitalist socio-economic framework, is greatly controlled by the self-interest of individual B(4). What makes Islamic economics really distinctive is that the integrative system of exchange and one-way transfer influence the allocation of scarce resources, thereby making the process of exchange immediately relevant to the total welfare of man (A/5) as distinguished from mere economic well-being (B/5).

This difference gives rise to the controversy of whether Islamic economics is concerned with ends or whether it should be neutral between different ends. Because modern economics is indifferent between ends, it discusses the economic problems as they are, not as they ought to be. In other words, modern economics is not concerned with value-judgments. Thus Professor Robbins observed: The subject-matter of economics is essentially a relationship between ends conceived as tendencies to conduct, on the one hand, and the technical and social environment on the other. Ends as such do not form part of the subject-matter. Nor does the technical and social environment. It is the relationships between these things and not the things in themselves which are important for the economist.

But some recent writers like Hicks, Lange, Kaldor, and others tried to restore at least a part of welfare economics on a strictly scientific basis. According to these writers, economic welfare is maximized if our economic resources are allocated in an optimal manner. The task of welfare economics, then, is simply to analyze the conditions of such optimum allocation. It should be noted that no ethical significance is attached by these writers to the term “welfare Whether we like it or not, Islamic economics cannot remain neutral between different ends. Thus the activities concerning the manufacture and sale of alcoholic drinks may be good economic activities in the modern economic system. It cannot be so in the Islamic States. Because on many occasions they do not promote human welfare—the welfare that may not be measured in terms of money. In modern economics, the individual’s welfare is regarded as an increasing function of the commodities and services which he, according to his scale of values, likes to have, and as a decreasing function of efforts and sacrifices which he will have to make for their attainment. But in Islamic economics, the individual must take into account the injunctions of the Holy Qur’än and the Sunnah in pursuing his activity. In Islam, social welfare is maximized if economic resources are so allocated that it is impossible to make any one individual better off by any rearrangement without making anyone or some others worse off within the framework of the Qur’än and the
Sunnah. Anything which is not expressly prohibited in the Qur’än or the Sunnah but is consistent with the spirit of the same may be styled as Islamic. We find no harm in having such activities carried out in the
Islamic economic system.

Though Islamic economics, like modern economics, is not merely concerned with that aspect of human behavior which is related to money-getting and money-spending, yet they form a great part of our economic activities. It is really surprising that even fourteen hundred years ago Islam tried to bring about a lasting balance between earning and spending in order to achieve the target of the maximum social advantage. Islam has always emphasized the lawful earning of a livelihood. All unlawful means of acquiring property are prohibited as these, in the end, destroy a people (Qur’än Sürah IV. 30). It has, therefore, laid down certain rules which govern and determine the form and intensity of the wealth-earning activities of man. They are so restrained as to be in complete harmony with the peace and well-being of society as a whole. At no stage are these economic activities to be free from the yoke of moral consideration. To this effect the Holy Qur’an says:

” O ye people!
Eat of what is on earth,
Lawful and good;
And do not follow
The footsteps of the Evil One,
For he is to you
An avowed enemy.”
Sürah 11. 168

Thus an Islamic State can encourage only those legitimate activities which are in complete harmony with social good. It follows that Islam views with extreme disfavor a monopoly of resources by a few capitalists
(Sürah LIX.7) and the stress is always on socially beneficial spending only. The Holy Qur’än says

And spend (in Charity)
Out of what We have provided
For them, secretly and openly,
Hope for a Commerce
That will never fail.”
Sürah XXXV. 29

In fact, niggardliness is condemned as a negative and destructive quality. The wealth of the misers, instead of bringing them any advantage, becomes a handicap and arrests their moral and spiritual development
(Sürah Ill. 180). The other extreme, extravagance, is equally condemned. He commands:

“But waste not
By excess, for God
Loveth not the wasters.”
Sürah VI. 141
“Verily spendthrifts are brothers
Of the Evil Ones;
And the Evil One
Is to his Lord (Himself)
Ungrateful. ”
(Sürah XVII. 27)

The fact is that Allah is Alone and All-Sumcient. It is men who are needy, and prosperity is achieved not through miserliness or holding back but through beneficent spending in the cause of Allah, that is, in the service of His creatures (Sürah XLVII. 38)

In this way, Islam harmonizes the money-earning and money-spending activities in such a way that it may promote the welfare of the people. Thus in one sense, Islamic economics is more restricted and, in the other sense, it is more comprehensive than modern economics. It is restricted because it is concerned only with those people who have faith in the Oneness of Allah and His moral teachings as reflected in the Holy Qurün and the Sunnah. It is also restricted because an Islamic State cannot encourage any and every economic activity. The activities which cannot promote human welfare cannot be encouraged in an Islamic State.

But the concept of human welfare cannot be static and is always relative to changing circumstances. The point is that the concept of welfare must be in harmony with the universal principles of Islam—principles that will remain valid for all times to come just as the sum total of one plus one will remain true to all ages.

Again, is comprehensive because Islamic economics takes cognizance of non-economic factors like political, social, ethical and moral factors. In a sense, it is like applied economics which also takes cognizance of noneconomic factors—the roughness and frictions of the actual world which tilt the balance of a practical decision. Thus the scope of Islamic economics seems to become the administration of scarce resources in human society in the light of the ethical conception of welfare in Islam. It is, therefore concerned not only with the material causes of welfare but also with immaterial matters subject to the Islamic prohibition on consumption and production.

Neither the consumer nor the producer is sovereign in Islam. The behavior of both is to be guided by the general, individual and social welfare as understood in the Shari’ah.

2. The Origin of Islamic Economics

The main purpose of this brief section is to establish the hypothesis that although the fundamental principles of Islamic economics owe their origin to the Qur’an and the Sunnah, the- interpretation and reinterpretation of those principles (governing a variety of subjects such as value, division of labor, the price system and concept of “fair price”, the forces of demand and supply, consumption and production, population growth, government expenditure and taxation, the role of the state, trade cycles, monopoly, price control, household income, and expenditure, etc. ) by a number of Islamic scholars and economists from the very beginning of Islam provided the operational basis of Islamic economics and continuity of economic ideas. Muslim scholars such as Abü Yüsuf (731 —798), 798), Yahyab Ibn Adam (d. 818), El Hafiri (1054-1122), (1201- 1274), Ibn-Taimiya (1262-1328)1, Ibn Khaldün (1332-1-406), Shah Warullah (1702— 1763), not to mention Abu Darr Ghifari (d. 654), Ibn others contributed to the development of the science of economics.

It is perhaps not out of place to mention briefly the contribution of a few of them. Abü Yüsuf’s contribution to public finance, his emphasis on the role of the state, public work and the development of agriculture has its validity even today. Ibn Taimiya’s notion of the “price of the equivalent”, his understanding of market imperfections and price control, his emphasis on the role of the state to ensure the fulfillment of the basic needs of the people, and his notion of ownership provide us with a number of interesting clues in understanding the theory of Islamic economic policy in our own times.

Tusi’s definition of economics clearly underlined the importance of the value of exchange, division of labor and welfare of the people. Thus Tüsi, in his famous Persian work Akhlaq-i-Näsiri, wrote:

” If every person had to remain occupied in producing his own food, he could not have survived clothing, shelter, and tools respectively because of becoming foodless during the (long) period required (for supplying the above things) … However, since people co-operate with each other and everyone adopts a particular profession, producing more than what is sufficient for his own consumption, and since the laws of justice take care of the matters pertaining to the exchange of one’s surplus output with the products of other people, economic means and goods become available to all. Thus God in His wisdom diversified people’s activities and tastes so that they might adopt different occupations (to help each other)..It is this division of work that brings into existence international structure and mankind’s economic system. Since human existence does not acquire a shape without mutual cooperation, it cannot take place without social contact, hence man by nature is dependent upon society.'”

Again Ibn Khaldün, the celebrated Arab scholar of Tunis who is universally recognized as the father of Social Sciences, has given a definition of economics which is broader in scope than that of Tüsi’s. He saw more clearly than many later economists the intimate connection between economics and human welfare. His reference to “the dictates of reason as well as ethics” shows that he considers economics both a positive and normative science. Further, his use of the word “masses” (al-jambür) is indicative of the fact that the purpose of the study of economics is to promote the welfare of masses and not of individuals. It is so because economic and social laws operate on masses and cannot be significantly influenced by isolated individuals. It was Ibn Khaldün who saw the interrelationship between economic, political, social, ethical and educational factors. Although his celebrated al-Muqaddimah deals with these factors separately, he considers them as inter-linked “aspects of civilization that affect human beings in their social organization”. He introduced a number of fundamental economic
notions such as the importance of the division of labor, recognition of the contribution of labor in the theory of value, the theory of population growth, capital formation, public finance, trade cycles, the price-system
Taken all in all, these Muslim scholars in general and Ibn Khaldün, in particular, can be regarded as precursors of the mercantilists, physiocrats and the classical writers (e.g. Adam Smith, Ricardo, Malthus) and neoclassical writers (e.g. Keynes).

Contributor: Muhammad Abdul Mannan,
M.A (Bangladesh), M.A. (Econ.) Mich. Ph.D.(Michigan),
Professor, Islamic Research and Training Institute,
Islamic Development Bank, Jeddah.

Source: Islamic Economics: Theory and Practice, Page # 17-24