Historical Background

Although the word “Islamic Economics” was used for the first time by Islamic writers of the Sub-Continent in the 1940s, writing on Islamic economics dates back to the thirties with the beginning of the contemporary Islamic political movement both in the Sub-Continent and the Arab world.

Anwar Quraishi (1948) was perhaps the first economist who attempted to discover an Islamic theory based on the prohibition of Riba. Since then we started having publications and research on Islamic economics by three breeds of people: socio-political activists, Shari\`ah scholars with little exposure to some kind of economics and Western-trained economists with little or not so little exposure to Shari\`ah scholarship. Sorting these writings and publications is very important to understand the development of Islamic Economics in the second half of the past century.

The first category of writings is normally general, politically oriented and condensed in the form of social and political slogans. The second category is loaded with Fiqh in both methodology and focus; with extremely few exceptions it is more of Fiqh al Mu\`amalat than any economics. Lastly, a considerable chunk of the writings in the third category is based on a precept of self-proclaimed distinctiveness. It is essentially the third category writings that should be the focus of our study and evaluation. Of course, there are other economic and political writings, in Arabic and other languages of the Muslim countries, that did not claim being Islamic or associated with the Islamic ideology/economics.

These are completely outside our consideration, although some writers like to group them within Islamic economics for objectives in their own hearts.

Islamic Economics: Paradigm, Discipline and Independence

Is Islamic economics independent from economics? Does it make a paradigm of its own? Does it depend on a set of assumptions and analytical tools that is different from economics? Does it make a discipline of its own?

Many Islamic economists have an undoubted affirmative answer. They argue that it is independent and they take upon themselves the task of attempting to invent an “appropriate set” of tools to understand the behavior of Muslim consumer, firm, macro numbers. The fervor of this attitude was very apparent when the world of economics had two-part Apartheid: communism and capitalism. In fact, communist writers also attempted to identify theirs as an independent paradigm while the capitalists have hidden their agenda under the plain name of “economics” for a long time.

To the Islamic religion and ideology, capitalist and communist thinking stem from a common utilitarian ideology that looks only at the human as a “homo-economicus.” It is therefore natural that many Muslim economists would view a multi-dimensional motive in the behavior of women and men and would rise against the purely utility motivated man as a basic assumption of economics. This would certainly call for a paradigm that is completely different from the paradigm of economics! But although the majority of capitalist economists hide their real assumptions behind a thin layer of “a purely rationalist science of economics,” economics itself grew out of their shell to develop studies on altruism, philanthropy and other non-utilitarian motives.

Ibn Khaldun and the Question of Economic Identity

Ibn Khaldun, the real founder of Economics as a branch of social studies, established his newly invented science on an absolute human basis and aimed to understand the individual and collective behavior of human beings “as they are” without imposing on them any pre-structured ideological, religious or societal assumptions. He did not have a “stigma” of distinctiveness that would have required him to “alienate himself from the rest of the human race, infidels or fidels alike. He even did not need to add a prefix “Islamic” in every sentence and before every variable and tool of analysis, although he recognizes the Divine Revelation as the Major source of knowledge. He also did not have an urge to “Islamize” the heritage of knowledge as it is handed over from one nation to another throughout history.

If we were to extend Ibn Khaldun to the subject of our debate today, we would find him discussing “economics” without being afraid to lose his identity; he would accept or reject theories and assumptions on their own merits and according to their reflection of the behavior of women and men, in their individual endeavors (micro) as well as in their association together (macro) on the basis of the “totality” of human beings without departmentalization or segmentation; he would also be able to criticize the established or accumulated ‘economics’ on the basis of the deficiency of its basic utilitarian assumption that ignores other intrinsic human motives.

Islamic Economic System: Common Goals and Distinctive Principles

In the short history of contemporary Islamic economics, we also encounter two other interesting phenomena: an overstatement of the uniqueness of the objectives of the Islamic Economic system, and a mix-up or confusion of principles and tools of analysis.

Driven by a sense of idealism, some of us attribute a special status to the general objectives of the Islamic economic system: Full employment, satisfaction of basic human needs, economic-cum distributive justice, development or improvement in the quality of economic life, economic power, etc.

But a closer examination of these objectives indicates to us that they are the same for all economic systems as usually expressed in their econo-political rhetoric throughout the human history. More specifically, these objectives are also the core objectives of socialism, communism and capitalism, even anarchism and all or “isms.”

The same also arises with regard to the institutions of market, factors of production and the principle of government intervention whereby some Islamic economists try to draw a so-called “Islamic” picture that is very different from the conventional wisdom that is common to other economic systems.

This is not to deny a certain uniqueness of the Islamic economic system. This uniqueness is founded on the principles of Islam as a revealed religion as they strike a balanced way of life that is not tilted in either direction.

A uniqueness that lies essentially in two things:

The explicit acceptance of the Divine Revelation as a source of knowledge.

Certain detailed pivotal      institutions such as the prohibition of Riba (interest), the private-public mix of property/ownership, the spiritual-material mix of  success, Zakah, Awqaf, etc.

In other words, while the general objectives and the tools of analysis of Islamic economics are the same in economics itself, some aspects of the institutional setting of the Islamic economic system are different, or the means this system uses to reach the common goals are not exactly the same as in other systems, the utilitarian capitalist which is generally given the name economics and the utilitarian communist which is dictatorial by definition.

Moral Foundations of the Islamic Economic System

Another important area of uniqueness of the Islamic economic system must be brought out explicitly. It is the moral characteristic of its articulation, on both the principles’ level and the level of the practical rules and regulations.

This moral characteristic makes a boundary of the accessible set of actions/decisions/behaviors of the economic unit. The economic unit in the Islamic system is equipped with the ability to judge possible courses of action on moral grounds, the same way one finds in all societies and systems, but to this the Islamic system adds an external screen apparatus that is manifested in the set of morally-based rules of what to do and what not to do that takes the form of the Shari\`ah or the Islamic law.

Some Islamic economists call this characteristic “the moral internal and external screening.” We must realize, however, that the Shari\`ah-based morality includes items that are not conventionally taken as moral matters such as ‘pork production,’ but we must also realize that the contemporary moral standards of the capitalist utilitarian societies are subject to an accelerating dynamism that associates relativity to all conventional morals.

Moreover, Islamic economists also argue that because it is sourced in the Divine Revelation, the Islamic economic system is balanced in a way that brings it closer to human nature (al-Fitrah). Accordingly, you will find in it apparent similarities to certain aspects of other economic systems because undeniably the latter are the product of human mind/experience mix.

Consequently, it is normal that the means to reach the common goals, in the Islamic economic system, include a free market-exchange with emphasis on honoring consensual contracts (some will see it as à la capitalist free market), prohibition of monopoly (à la interventionism), great concern about the satisfaction of the basic human needs and about economic justice (à la socialism) and assignment of a substantial chunk of natural resources to the whole society as represented by its government (à la communism).

Add to it all, the prohibition of interest that denies any rewardability to most of the purely financial transactions unless it is formed as means of production and thus deprives them from the functionality that is conventional in the capitalist framework.

👉 Read also:

• Principles of Islamic Finance: A Complete Guide
• Types of Classical Islamic Financing Contracts
• Types of Hybrid Islamic Financing Contracts
• Categories of Islamic Financial Contracts
• Types of Sukuk and Islamic Securities

Reference:

This series is based on a paper published by Dr. Monzer Kahf.