CHAPfER II MUSLIM ECONOMIC THOUGT AND SALIENT FEATURES OF ISLAMIC ECONOMIC SYSTEM PP: PDF Free Download

CHAPfER II MUSLIM ECONOMIC THOUGT AND SALIENT FEATURES OF ISLAMIC ECONOMIC SYSTEM PP: 24-48

Chapter II Muslim Economic Thought and Salient Features of Islamic Economic System This chapter studies essential features of Muslim economic thought. It is organized as under: Section I introduces moving forces behind different economic ideologies. In Section II an attempt is made to introduce the discipline of Islamic Economics and in Section III certain salient features of Islamic economic setup are highlighted. 2.1: Moving Forces When we turn the pages of history we find that, during the last 100 years world had witnessed a clash of economic ideologies more than ever before1. Studies of the history of different ideologies bring to our notice certain moving forces behind each ideology. For example, while capitalism thrived on the basis of free market enterprise, the communism advanced the argument of state ownership. This world One should read here the recent debate over clash of civilization of Samuel P. Huntington, "The Clash of Civilizations?" Foreign Affairs Summer 1993, 72/3. SAMUEL P. HUNTINGTON is the Eaton Professor of the Science of Government and Director of the John M. Olin Institute for Strategic Studies at Harvard University. This article is the product of the Olin Institute s project on "The Changing Security Environment and American National Interests." 24

is a silent spectator to the fact that the Capitalistic approach, though took some of the economies to the unbelievable heights of the wealth and affluence, failed to address the basic problems of satisfying hunger and thirst at the peripheral level. Similarly under the influence of Communism, a few of the economies grew strong economically, politically and militarily.1 However, in these economies, at the alter of economic growth the individual freedom and private initiative were sacrificed mercilessly. The capitalistic ideology had its roots in the laissez faire policy, Adam Smith's idea of invisible hand, concept of butcher and baker2, Say's law of market, enlightened selfinterest, etc,. These notions played a prominent role in developing capitalistic ideology which, however, sidelined the role of the government. The capitalist economies thrived on the basis of free market enterprise. Although the achievements made by the capitalist economies were numerous, several problems, haunted these economies, like 1 The erest while Eastern European Economies in addition to the mighty U.S.S.R. 2 It is widely alleged that anti-ethicalism was preached by Adam smith who laid down the maxim: It is not from the benevolence of the butcher, the brewer, or the baker, that we accept our dinner, but from their regard to their own interest. For a further discussion one can refer to Sayed Nawab Hyder Naqvi s Development Economics-A new paradigm Sage publications, 1993,p. 109. 25

unemployment, poverty, illiteracy, income- consumption inequalities, etc. The Russian revolution of 1917 and the Great Depression of 1930 changed the mind set of men in charge of public affairs. Further the writings of J.M. Keynes advocated the intervention of the government on the ground of maintaining and sustaining an acceptable level of output and employment. Communism advocated equalizy, government ownership but it neglected individual freedom and private initiatives. Consequently after a few decades cracks started appearing in this approach too. Its evidence could be found in the disintegration of mighty U.S.S.R, and collapse of the Berlin wall. Thus, during 1960's and 1980's the advocates of government intervention enjoyed a considerable degree of acceptance. However, we can notice that cracks have started appearing in this approach too. It was realized that the government can be at the best a good source of investible funds, it cannot be a good manager of funds. Now the 26

events have taken a full turn and once again the cry for a limited role of the state is being heard. The advocates of capitalism are happy at the failure of communism, but the sympathizers of communist ideology are of the opinion that even capitalism is going to collapse one day or the other under its own weight. Thus, when one ideology was born we notice that in its birth itself it had sowed the seeds of its destruction. Each ideology enabled its followers to achieve phenomenal materialistic growth notwithstanding the problems within. When we analyze efforts of all nations of the world during twentieth century we find that tremendous material advancement has been achieved, whatever might be the economic system. The tragedy, however, is that in the whole process of development man became a cog in the machine of development generating economic prosperity. No doubt a lot of lip service has been rendered for the equality of people and upliftment of mankind but in reality mankind moved away from the Cultural nourishment, equality of humankind, fellow feelings, uprightness, morality etc. The twentieth century witnessed huge 27

unemployment problem, personal and inequalities, ever increasing burden regional of debt, especially in the developing nations. 2.2: Understanding Islamic Economics It is not long ago that economics was a branch of politics. Economic issues were studied alongwith the issues relating to politics, governance, administration, etc. It was only in the previous century that economics was separated from politics. Similarly in the case of Islamic Economics too, the Islamic economic ideas were a part of the study of Islamic thought, Islamic history and Islamic jurisprudence (fiqh). It is very recently that Islmic Economics has emerged as an independent discipline. Therefore it would be appropriate to understand in brief the essence of Islamic economic system. This system emerges from two sources namely the Quran and Sunnah. The combination of the two is known as Islamic Shariah. Quran is an eternal message of the Almighty Allah to the Prophet Muhammad and through to him to the whole humanity. The Quran speaks at every level; it seeks to reach 28

at every type of understanding, through parables, similitude, arguments, reasoning and observations. It provides natural, moral and spiritual laws. The sayings, actions, customs and habits of the Prophet are known as sunnah. The answer to the question as to why sunnah is a source of law lies in the Holy Quran which asks the Prophet to decide the problems of the mankind according to the revelations (V, 47-48). The followers in turn are asked to follow the foot prints of the Prophet as he is a perfect model. Islamic economic system deals with economic issues concerning human life well within the limits of the Quran and the Sunnah. Islamic economics is a social science which studies the economic problems of people and nations in the context of broad values of Islam. Like the modern economics, Islamic economics too is the study of man, not of an isolated individual but of a social individual having a faith in the Islamic values of life1. Mannan.M.A. Islamic Economics: Theory and practice A comparative study, Ida rah- i-adbiyat-i- Delhi, Delhi 1980, p.3 29

Man is at the heart of Islamic economic system as in the case of modern economic system1. In modern economics man is taken as a social animal and as an economic agent guided primarily by individual economic interest. In Islamic economic system, man is accepted as a social animal imbued in religious values, "Islamic Economics conceives man in the frame work of Shariah. He is free to act any way he likes, subject to the overriding consideration of the will of Allah. His individual as well as collective behaviour are guided and regulated by a super-decree given by the shariah. The western economics conceives man in the frame work of individualism and hence unsuitable for a society where the revealed shariah holds the highest position2". As in the case of modern economic system, in Islamic economic system too we confront with the problem of scarcity of means. For its redressal, in Islamic economic system, both the human effort and benevolence of Almighty are given due importance. So 1A1 Ghazali, Abdel Hamed., Man is the basis of the Islamic strategy for Economic development, Islamic research and Training Institue,(IDB), Jeddah, 1988, p.13-57. 2 Khan M. A., Economic teachings of prophet Muhammed: A Select Anthology of Hadith Literature on Economics, Oriental Publications, DeJhi, 1992, p.3 30

far as the problem of choice is concerned, in the modern economic system an individual is guided by his own interest, where as in Islamic economic system an individual is governed by clear cut dictates of the Quran and the sunnah. He has clear notions of what is right and wrong, legal and illegal and prohibited and allowed. When examined from this prospective the economic behavior of an individual, as well as of groups of individuals, will be distinctly different from the one as normally postulated. All economic systems cherish certain values. For example, equitable distribution of wealth, social insurance, fair competition, etc, have been made as the goals of the known economic systems. Similarly concentration of wealth in a few hands, monopoly control over market and resources, exploitation, unemployment and unfair business practices, etc, are never approved in the known economic systems where the ultimate goal is human welfare. So far as the concept of welfare is concerned, Islamic approach is greatly similar to other known 31

approaches. But, when examined carefully it would be clear to us that the Islamic economic approach transcends the worldly limit, in the sense that it is equally interested in the welfare of the people in this world and in the life hereafter. In this regard activity promoting human welfare is not an end itself. It is taken as a means of greater welfare that has a spiritual significance. Various means to achieve this welfare have the divine sanction. "Islamic Economics aims at the study of human falah (Welfare) achieved by organizing the resources if the earth on the basis of co-operation and participation"1. The key concepts in the above definitions are: 1. Falah. 2. Resources. 3. Co-operation and participation2. Falah in Islam, which is mentioned in Quran in several places, refers to the benefits a person 1 Khan Muhammed Akram - An introduction to Islamic Economics, Kitab bhavan New Delhi p.33, 2 ibid 32

derives in this world and the world after. More over Falah is applicable both to the individual at the micro level and to the whole society at the Macro level. The second key concept is the resources. The Almighty Allah has created resources for mankind to utilize and obtain falah. We can find its reference in Quran: "On earth will be your dwelling-place and your means of livelihood (mataa) for a longtime. These resources are plenty in nature, and are sufficient for all human beings provided there is no miss utilization of these resources".(2:36). There should not be any miss utilization of the resources, and scarce resources should be used proper for multiple ends. Islam advocates cooperation and participation in utilization of natural resources in such a way that the flow of resources is for a long period and is available to all the people. More specifically Islam practices law of co-operation and participation in several ways one is through zakah i.e. rich should transfer their stored wealth, at the rate of two and half percent annually in favour of poor and needy. 33

Similarly the Islamic economic methods too are different from those adopted in the known systems. These revolve around the Quran and traditions of the Prophet. In other words, the methods used are valuebased. These methods, as in the case of other known methods are "peculiar in two respects: firstly they are eternal and cannot be altered, secondly, they carry a Divine sanction and command a convenient obedience from people. They are unlike any state legislation passed by parliament1". Thus, it can be said that the divine notions of vice-regency man, day of judgment, brotherhood of all human beings, status of the Prophet, divinity of halal (permissible) are some of the peculiar features which make the nature of Islamic economic system distinct from the other known systems. "No other economic system conceives such a scheme of life in this world and in the world hereafter2". 2.3: Important Features of Islamic economic system: From the verses of Holy Quran, traditions of the Holy Prophet and the writings of great Islamic scholars we can derive certain important features of 1 Khan, M.A., Issues in Islamic Economics, Islamic publications Limited, Lahore, 1983,p.14 2 Khan, M.A., Issues in Islamic Economics, Islamic publications Limited, Lahore, 1983,p. 14 34

Islamic economic setup. A few of these are features are briefly explained as under: 1. Individual Economic Liberty. 2. Right to property. 3. Comprehensive Social security. 4. Wider circulation of wealth. 5. Prohibition of Anti-social and Economic practices. 6. Social and individual welfare. 7. Practicing correct Weights and measures: 8. Value based consumption and Production. 1. Individual Economic liberty: In an Islamic system a person has the complete liberty to adopt any economic activity, enjoy, support or promote any occupation of his choice, within the limits of shariah. "O you people! Eat of what is on earth, lawful and good; and do not follow the footsteps of the satan, for he is to you an avowed enemy". (2:169). The above verse implies to the economic freedom of man to develop his incentive and urges to promote private enterprise. At the same time, it is to be 35

noted that he is not free to adopt and promote such of occupations and business enterprises which are declared as illegal from the Islamic point of view. It also contains an implicit condemnation of all activities which are unlawful and which are prohibited by the shariah. On one hand, an individual is granted full liberty, on the other, the Quran says that he is taken zo the task for his actions on the Day of Judgment. Islam does not approve practices which neither give any freedom to individuals nor provide equal opportunities to earn their livings. 2. Right to property: Islam recognizes the individual's right to property. Islam allows an individual to earn as much as possible through his ability and through permissible means. Both men and women have the right to own property. "To men is allotted what they earn, and to Komen what they earn". (4:32,). Islam exhorts its followers to earn and accumulate the wealth and develop property through legal means. It restricts its followers from accumulating the wealth by illegal means. Thus it 36

can be said that right to property is conditioned to lawful acquisition. Once the wealth is accumulated, Islam asks for a regular transfer of a part of wealth from rich to the poor. In other words Islam acknowledges the right of poor in the riches of wealthy. Above all, Islam asks the a wealthy person not to consider himself as the absolute owner of wealth. The absolute ownership rests with the Almighty only. The Islamic system is based on the concept of harmony between conflicting interests. One the hand there is "self interest" on the other there is "public interest" In this context the principles of acquisition of property can be enumerated as under: 1. The Almighty is the Absolute owner of all property regardless of time, place and type. 2. Man being the deputy of Allah is only a relative owner. 3. The ownership is a trust from Almighty. 4. The trustee will be questioned regarding the management of trust. 5. The poor have a share in the property of wealthy which needs to be transferred on an annual basis at the rate of 2.5 percent. 37

3. Comprehensive Social security: In Islamic state every individual has the right to livelihood and every citizen is guaranteed his basic needs. It is the primary duty and the responsibility of the Islamic state to see that every citizen gets his basic needs satisfied. There are all possibilities that there may be a large number of persons who despite their best efforts are not in a position to lead a decent life. They may be also not in a position to provide a decent life to their dependants. Their lives may be characterized by hunger, disease, squalor and deprivation. Without regard to caste, creed, colour, regions and localities, Islam regards all men and women as creatures of Allah. Also Islam favours that these creatures should not be disturbed or displaced for no fault of theirs. It follows from this notion of Islam that all the creatures of Almighty should lead a life with a minimum of comforts, decency and decorum. In other words sufferings of creatures of Almighty should be minimized by efforts both at the individual and collective levels. 38

With view in mind it can be said that Islam envisions provision of social and economic security to the vulnerable sections at these levels: 1) personally at the individual level, 2) collectively at the community /society level and 3) at the state level. At the state level, it enjoins upon the state and its functionaries to arrange the social and economic security of disadvantaged and deprived groups. "0 mankind! Lo! We have created you male and female and have made you into nations and tribes so that you may know one another. Lo! The noblest of you in the sight of Allah is he who is the best in conduct" (49:13). The provision of social security is regarded as a form of "ibadah" (worship). It is an obligatory duty of well-to-do to look after their less fortunate brethren. As and when their collective efforts fall short of the requirements, the Islamic state is asked to bear this responsibility. Pages of history are replete with numerous examples that the Islamic state discharged this particular responsibility very well. There is a tradition to the effect that "if a person to whom Allah has made a ruler is not a well wisher of people, he would nor 39

then come even nearer to the fragrance of the heaven1". 4. Wider circulation of wealth: Islam is in favor of a wider circulation of wealth, it is against the concentration of wealth in few hands. In order to achieve this particular object, Islam adopts various positive and negative measures. Positive measures include, among others, compulsory payment of zakat and the law of inheritance. The negative measures are prohibitory in nature which include, ban on interest-based transactions, ban on unlawful trading practices, gambling, speculation, dishonest and deceitful dealings, hoarding, etc. The Quran says: " And those who hold up gold and silver and spend it not in the way of God, announce to them a painful chastisement" (9:34). Further: "Woe to every (kind of) scandalmonger and backbiter. Who piles up wealth and lays it by. Thinking that his wealth would make him last forever. By no means, he will be sure to be thrown into that which breaks to pieces". (104, 1-4). 1 Al-Bukhari., Kitab al Ahkam. Al-Mataba ah al-amiriyah,bulaq 40

It is already pointed out that Islam permits the acquisition of wealth by permissible means but its holding in a few hands is not permitted. The socio- economic evils associated the concentration of wealth in a few hands only is very ably documented in economic literature. The concentration has been a cause of many social upheavals in the past. Its continuation develops socio-political and economic unrest. Islam permits differences in wealth within reasonable limits but does not tolerate these differences growing so wide that some people spend their life in luxury and comfort, while the great majority of people are left to lead a life of misery and penury. The differences in wealth-ownership must not exceed natural and reasonable limits. If these occur, it will be then a beginning of an end of the community1." Islam favours a wider circulation of wealth through the following means: 1) Sadaqat (voluntary transfer payment). 2) Zakat (compulsory transfer payment). 3) Division of property. 1 Rahman Afzalur, Mohammed: Encyclopaedia of seerah,, vol. II Seerah Foundation, London, 1986p.374. 41

4) Imposition of levies in addition to the shariah prescribed ones. The overall purpose of a wider circulation of wealth is to ensure a minimum living standard to the vast majority of people who are normally very poor. Islamic emphasis on social security is not an after-thought of the socialistic thinking of the 20ch century. The Islamic state, some fourteen hundred years ago, provided social security to its people. The social security net was wide enough to cover all people without regard to the colour or faith of the people1. 5. Prohibition of anti-social activities: Islam prohibits all such practices and activities which are by nature anti-social and anti-economic. These practices and activities are normally harmful and injurious to the persons and society as well. The anti-social and anti-economic activities promote self-interest of a few but damage the public interest at large. There are several such activities and practices. For example the two major are consumption of alcoholic drinks and gambling. "They 1 Peerzade, Sayed Afzal., Islamic Public Finance and Policy, op.cit., pp. 42

ask you concerning wine and gambling. Say: In them is a great sin and some benefit, for men; but the sin is greater than the benefit" (2:219). Again the Quran says: "O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are abomination of Satan's handiwork: Eschew such (abomination), that ye may prosper". (5:93). The Prophet also banned unlawful activities: Abdullah b. umar reported Allah's Messenger as saying: "Indeed, Allah has made unlawful for my ummah, drinking gambling, beverages made of millet and chess"1. It is the duty of a Islamic states to see that these activities do not flourish. It should promote only those activities which are meant for welfare of the people. As and when anti-social and anti-economic activities are curbed, the resources, both financial and physical are used efficiently. Moral levels get improved. A morally responsible economic agent is expected to promote his own interest without damaging interest of others. 1 Hanble, Ahmad b., Musnad. Vol.II pp.165,167,171, 172,351 43

6. Social and individual welfare: Islam exhibits a great interest in the promotion of welfare of individual and society. It recommends those activities which are for the welfare of all. It recognizes social and individual welfare as complementary rather than competitive and antagonistic. It is mentioned in the Quran: "And there are men who say: "Our lord Give us good in this world and good in the Hereafter, and save us from the torment of the fire" (2:201). In conventional economics, major contributions in the area of welfare economics are those of Pareto, Pigou, Hicks, Kaldor, and Arrow. Of late the contribution of Amartya Sen has also received world wide acclaim. All these economists equate welfare level with that of levels of utility. Sen, however, talks in terms of empowerment. Hicks and Kaldor argue that those who are "benefited by a change in economic policy" should compensate those who are not. This is popularly known as "compensation principle". Long before the development of the subject of welfare economics, Islam institutionalized the 44

process of compensation. It fixed a share for less fortunate people in the wealth of rich people. They were asked to honour this share by transferring a part of their wealth in favour of poor on an annual basis. A historical study of the early Islamic state would make it clear that it was a truly welfare state1. The affairs of the state were conducted in way to maximize welfare of its subjects. Several welfare oriented policies were adopted. For example, rationing, old age pensions, assistance to handicapped and physically challenged persons, health care facilities, financial assistance to newly born children etc., were arranged. Islam recognizes social and individual welfare as complementary rather than competitive and antagonistic. It tries to harmonize these conflicting but complementary interests. The economic system of Islam is based on the concept of harmony between the individual and social good. It neither seprates the individual from society, nor does it regards his welfare as conflicting with that 1 Peerzade, Sayed Afzai., Islamic Public Finance and Policy, op.cit., pp. 45

of society. In principle it allows private ownership of land and other means of production but restricts it in such a way that it becomes harmless to the social good1". An interesting aspect of welfare in the Islamic context is that the material welfare is not an end in itself. It is considered as a means of improving welfare level in the life hereafter. 7. Practicing correct Weights and Measures: The religion of Islam is very ; particular about practicing correct weights and measures. At several places in the Holy Quran there is a mention of a need to practice correct weights and measures. Quran speaks in this way: "Give just Measure and weight, nor withhold from the people the things that are their due and do no mischief on the earth", (7:85). Further: "And give not short measure or weight... And "0 my people! Give just measure and weight, nor withhold from the people the things that are their due: commit not evil in the land with the intent to do mischief", (11:84-85). In the Islamic setup the application of notion of correct weights and measures is not be limited only to the purchase and 1 Rehman Afzalur., Muhammed:Encyclopaedia ofseerah, vol.il, op.cit., p.351 46

sale. It is extended to cover all dealings and practices. Only then it would be possible to carve out a society free from exploitation and injustice. It, therefore, has wider socio-economic ramifications. 8. Value-based Consumption and Production: Islam does not recognize the pure materialistic bent of modern pattern of consumption. The Islamic economic values seek to reduce excessive material needs in order to release human energy for the spiritual pursuits. The Quran speaks: "0 men eat the lawful and the good things out of what is in the earth", (2:168). This verse indicates that every one has a right to consume any thing which is permissible in Islamic shariah and demand those things which are lawful. There is no harm or sin in demanding any thing, which is provided by the benevolence of Allah. The fundamental principle, in the process of production, is a maximum utilization of resources. Both human and natural resources should be employed in a way to produce better quality of goods at reasonable prices. Islam condemns wastage of 47

resources. The value based consumption and production will alter the trajectory of ordinary course of consumption and production for economic and social betterment of the society. Scarce resources will be available for uses that are more productive. 48