Contributions to Islamic Economic Theory pdf

CONTRIBUTIONS TO ISLAMIC ECONOMIC THEORY – Book Sample

Introduction: Towards a Definition of Islamic Economic Theory

The question whether the idea of Islamic economics is meaningful, well-defined or practical has been occupying the minds of many people for some time. There are those among Muslims who wonder whether such a discipline is at all applicable in today’s complex world of economics and international relations. There are others who have just started to grapple with the problems of its definition and structure. 1

in the West the sudden outburst of the political economy of Middle East oil, the Islamic revolution in Iran and the growing self-assertion of a Third World economic order led by oil-rich Muslim states have brought the subject of Islamic economics to the attention of some scholars. 2 The basic question being raised is, what does it really mean?

Therefore, the problem to which an Islamic economist must address himself is the definition of Islamic economics and, broadly, of lslamic economic theory.

The economics of Islam as it stands today is just a digit in a vast number of potentials. it has not advanced with the tempo and vigour of modem economics.

 What the Muslim economist has today in this field are just the rudiments of certain principles of Islamic behaviour and public policy derived from the works of the glorious past. Notably among these are lbn Khaldun,3 lbn Taimiyya,4 imam Ghazzali5 and others between the sixteenth and eighteenth centuries; and in con­temporary times Maududi,6 Sadr,7 Abduh,8 Waliullah,9 Shatibi10 and a number of others. in addition we have of course the principal sources of Islamic knowledge, the Quran and the traditions of Prophet Muhammad. 11

Yet the disciplines termed economic theory or economic analysis are of recent origin. They owe their development in the eighteenth century to the emergence of the political economy of market mechanism, propounded first by the laissez faire principles of Adam Smith, refined later by the methodological rigour of the Ricardian system of the value and determination of the profit rate in agriculture as a primary regulator of economic growth. 12

This development was followed in the early nineteenth century by the pleasure and pain calculus of utilitarianism, whose chief exponent was Bentham. The idea of utilitarianism was instantly taken over by the neo-classical school, led by Alfred Marshall in England, Menger in Austria and Walras in Switzerland, and the neo-classicists bequeathed to the world the idea of marginal utility, thereby explaining the demand side of price formation.

The economic story-telling did not end there. it got newer twists in the socioeconomic analysis of historical change by Marx and the rebirth of macroeconomics with Keynes’s General Theory.

Over the years since the eighteenth century the objectives of modern economics have changed significantly. üne can associate three major foci of development. in the first half ofthe nineteenth century economic analysis was concerned with the problems of distribution. After l 870 it became concerned with the problems of optimal allocation of resources among competing ends.

Finally, since the rebirth of macroeconomic theory, it is concerned with the problems of economic policy relating to employment, the generation of aggregate demand for goods and services and price stabilisation.

This is admittedly a somewhat sweeping account of the growth of economic theory as it stands today. But has economic analysis or, in Schumpeter’s words, ‘economic science’, really progressed? Certainly it has done so in methodological content. The configuration of economic analysis has been unsparingly mathematised. Recently a long chain of eminent economists became preoccupied in analysing the structure ofa general equilibrium for the economic field. 13 Samuelson is, of course, a champion of this cause. in his Foundations of Economic Analysis he showed that the general equilibrium framework of economics has much in common with that of a physical system.

Western economists since time immemorial have concerned themsel­ves only with the view ofman as homo economicus. This was sufficient for erecting their structure of market mechanism. Everything else that was beyond empirical analysis was excluded. Schumpeter’s well-known work on the history of economic analysis discerned a complete removal of matters of ethics and values in the economic system on grounds that were empirical. 14

Schumpeterian caveats apart, the fact remains that economic science is certainly not devoid of value judgements by economists, or of the ideological, social, moral and political backgrounds of different people from which the value judgement springs.

But to retum to an understanding of the principles of lslamic economics – Islam is a coherent religion ofboth worlds, the present and the hereafter. Every reward in the next world is an inverse definable function ofhuman action in the present world.15 The significance ofthe latter is indicated by the impact it leaves on specific functions of an lslamic society. in the words ofNaqvi, 16 ‘lslam is a self-sufficient entity, with clearly defined features – an arabesque wherein reside the religious, economic and social dimensions, providently equilibrated to form a unity.’

The guiding laws oflslam that relate to ali different dimensions of humarı life are known as shariah. Of course, there are the two branches of the lslamic Divine Law, namely, ibadah, meaning lslamic worship, and mua’ma/at, meaning ‘affairs of the world.’ in the eyes of shariah they are one and the same. 1 7 This is basically the fundamental difference in the approach and content of the lslamic social sciences from those of others. There is a daim in certain quarters that similar views were vouchsafed by the scholars of the Enlightenment. This is untrue.

Let us first consider St Thomas Aquinas’s ideas on economic analysis. He is known to have made a clear distinction between secular and sacred matters as they comprise the social sciences. Thus he excluded whatever was the sacred doctrine from an analysis of the market system, and ‘assigned no other prerogative to the sacred law but that of a super­mundane dignity and did not give it any authority over the latter’. 18

 Thomas Aquinas’s era was followed by the age of natural law philosophy, and subsequently by the age of moral philosophy, a product ofthe Enlightenment. Moral philosophy was literally defined as the sum total ofthe sciences ofthe ‘mind’ and ‘society’. Alas it fell into the hands of specialists in individual branches of moral philosophy, who neglected the need for co-ordinating the different branches based on comprehens­ive principles, and this was particularly true with economics.

The collateral existence ofa purely worldly action side by side with lslamic ethical attitude is indeed a means of convenience in an lslamic society. For example, the voluntary payment of zakah, an annual wealth tax for income-redistributive purposes levied by an lslamic state on the well-to-do, is primarily an act of lslamic belief, but the economic rewards of this payment are many. Zakah can be spent on training the needy, thus reducing structural forms of unemployment, 19 increasing eamings, productivity and social welfare. Again, there is the example of