Islam Versus Economics

Dr. Asad Zaman

Contents
1. Introduction 3
2. Does Growth Remove Scarcity? 4
2.1 Cross-Sectional Evidence 4
2.2 Time Series Evidence 6
2.3 Occupy Wall Street 8
2.4 Global Inequality and Injustice 9
2.5 Poverty and Famines 9
2.6 Wars 10
3. Why Growth Does Not Remove Scarcity. 11
3.1 The Trickle-Down Effect 12
3.2 The Quran Explains the Failure of Trickle-Down: 13
4. The Islamic Approach: Basic Concepts 13
4.1 The Weighty Message of the Quran 14
4.2 The Purpose of Creation 15
4.3 The Methodology of Islamic Economics 16
5. The Human Factor 17
5.1 Economists Reverse Priorities 18
5.2 Human Development 20
5.2.1. Are Humans Good or Evil? 20
5.2.2 Failure of the Scientific Method 21
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5.2.3 Ideal Human Behavior
6. The Islamic Solution: Fundamentals
6.1 The Dual Nature of Wealth
6.2 Overcoming the Love of Wealth
6.3 The Distinction Between Needs and Wants
6.3.1 Wants Can Never Be Fulfilled
6.3.2 Islam prohibits pursuing idle desires
6.4 Moderation in Consumption
6.4.1: Avoiding Israf and Tabzeer: Excess & Waste
6.4.2 Avoiding Conspicous Consumption
6.4.3 Simple Lifestyles
6.5 Spend Excess Wealth on Others
6.5.1. Reciprocity
6.5.2. Rights to Property
6.4.3 Justice/Compassion
6.4.4 The Bounty of Our Lord.
7 The Heart of An Islamic Society
7.1 The Ummah
7.2 Cooperation
7.3 Responsibility
7.4 Compassion
8. Institutions of An Islamic Society
8.1 Ummah & Brotherhood Versus Nation-States
8.2 Waqf Versus Banks
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8.3 Service Versus Profit
8.4 Communities versus Individuals
8.4.1 Local Public Goods
8.4.2 Takaful Versus Insurance
8.4.3 Extended Versus Atomic Families
8.5 Public Versus Private Education
9 Concluding Remarks
Bibliography
1. Introduction
For Muslims, it is axiomatic that the Quran contains wisdom far beyond the collected strivings of all
humankind for knowledge. The Quran itself states that:
10:58 (Asad) Say: "In this [the Quran] bounty of God and in His grace, then, let them [the Muslims]
rejoice: it is better than all that they [those who reject God] may amass!"
Our goal in this article is to show that Islamic teachings related to economic affairs contain far greater
wisdom than what is currently being taught at vast majority of economics departments in leading
universities throughout the world.
The most fundamental teaching of economics is that economics is the science of scarcity. Without
scarcity, there would be no economics, since everything would be abundantly available to all. The way
to remove scarcity is by increasing production of goods. Sufficient wealth will solve the problem of
scarcity. While there is plenty of textual evidence in support of these widely believed economic ideas, a
quote from Keynes is most explicit and instructive:
When the accumulation of wealth is no longer of high social importance, there will be great changes in the
code of morals. we have exalted some of the most distasteful of human qualities into the position of
the highest virtues. The love of money as a possession ( is ) a somewhat disgusting morbidity ... But
beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and
to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution
must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity
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into daylight (Keynes, 1930 cited in Skidelsky, 2001).
This passage states several important beliefs, which are widely shared by economists; see Nelson (2001)
for documentation:
1. Even though love of money is bad, it must be encouraged, for this will lead to the accumulation
of wealth.
2. Once enough wealth accumulates (which might take another hundred years), we will leave the
tunnel of economic necessity, and emerge into the daylight of plenty for all.
3. When everyone has plenty of wealth, then there will be a great change in the code of morals.
People lie, cheat, steal, only because they do not have sufficient wealth. They will become kind
generous and gentle when the problem of scarcity has been solved.
Our goal in this paper is to show that both the diagnosis and the prescription of the economic problem
are dangerously wrong and misleading. Furthermore the Quran tells us that these theories are wrong
and teaches us the right diagnosis and prescription for the economic problems of man.
2. Does Growth Remove Scarcity?
If scarcity that is, insufficient goods available is the fundamental economic problem, then it seems
apparent that producing more goods via economic growth, should solve the problem. Instead of
taking it as an article of faith that economic growth will remove the problem of scarcity, let us look
at the empirical evidence which can be brought to bear on this matter. There is a wide variety of
different types of evidence, all of which show quite conclusively that economic growth as such does
not affect scarcity. First we examine this evidence; later, we will look at the reasons why growth does
not remove scarcity. Our main goal will be to show that Islam offers a radically different diagnosis, and
correspondingly a radically different solution to our economic problems.
2.1 Cross-Sectional Evidence
Is it true that economic growth has led to prosperity, and has resolved the problem of scarcity? There is
a tremendous amount of evidence that this is not true. Initial results were presented in Easterlin (1974),
which are summarized in Figure 1 below, taken from the Easterlin article.
According to this data, GNP per capita in West Germany was more than 10 times that of Nigeria. Thus
the problem of scarcity should be far less in West Germany. Accordingly, people should be more free
from want, and happier. However the data shows that anxiety about economic concerns, which is a
major factor in happiness, is about the same in both countries. Clearly, having ten times as much in
worldly possession has not resolved the problem of scarcity. Similarly, Cuba and USA are both outliers
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in this data set, with happiness much higher than average. However, the GNP per capita in USA is six
times that of Cuba.
These findings of Easterlin are striking, because they conflict with a core teaching of economic theory.
All over the world, countries are striving and planning to generate maximal growth in GNP per capita,
as the route to development. Easterlin shows that all this effort is in vain because growth will not lead
to additional happiness. Many other careful cross sectional studies also suggest that increases in wealth
will not result in reduction in scarcity, contrary to widespread and dominant beliefs of economists. Some
objections to this finding are discussed below. Other objections are dealt with later, when we explain
the reasons for this finding.

OBJECTION 1: Happiness measures are not objective. They can fluctuate for temporary and random
reasons and result in erratic findings unrelated to the basic life-style and comforts being enjoyed by the
people.
ANSWER 1: A detailed answer is given in Easterlin (1974,2011), who shows that these findings are stable
and robust, and replicated over many different types of data.
OBJECTION 2: Possibly wealth removes scarcity but happiness levels do not rise because of other factors.
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ANSWER 2: A detailed examination of the data shows that people compare themselves with others. So
if the average wealth level is high, then people feel they dont have enough that is, they face scarcity.
Economic factors continue to be a strong determinant of happiness, but it is relative standing which
matters, and not the absolute level of wealth.
2.2 Time Series Evidence
As an objection to the cross sectional evidence, some have argued that comparisons across cultures are
not valid or biased for some reason. This objection has been carefully examined and rebutted; it has
been shown that the pattern of concerns which affect human happiness are pretty similar across a wide
range of cultures. Furthermore, economic concerns top the list. Detailed examination reinforces our
argument that paradoxically, economic growth does not reduce levels of anxiety due to economic
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problems of scarcity. Nonetheless, in this section we examine time series data which is not subject to
cross cultural comparison problems and biases.
What happens when there is a huge increase in goods available in one society with the passage of time?
The evidence presented in Easterlin (2011) can be summarized as follows:
The striking thing about the happinessincome paradox is that over the long-term
happiness does not increase as a countrys income rises. () the long term nil
relationship between happiness and income holds also for a number of developing
countries, the eastern European countries transitioning from socialism to capitalism,
and an even wider sample of developed countries than previously studied.
As the figure 1 taken from Easterlin (2011) shows, there is no relationship between economic growth
and satisfaction, contrary to the expectations and assertions of economists. If we are concerned with
the welfare of the people, economic growth seems irrelevant negative and positive rates are all
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compatible with similar levels of happiness.
As Easterlin states, average families in the 1970s in the USA enjoy comforts only available to the
exceedingly wealthy of two centuries ago. Nonetheless, opinion surveys show that economic concerns
and anxieties of the majority of the population have not been relieved by this massive accumulation of
wealth. Again time series data shows that the accumulation of wealth does not solve the problem of
scarcity.
2.3 Occupy Wall Street
Evidence that massive increases in wealth have not led to a solution to the problem of scarcity is
also available in the recent protests against culture of greed on Wall Street. Figure 9 summarizes the
problems which are the subject of the protests. It is seen that corporate profits, and CEO salaries are at
record-breaking high levels, while the workers pay is at record low levels for decades.
In an economy which has spent over five trillion dollars on wars, homelessness and hunger are
at record high levels, according to recent USDA reports. Thus the poor face problems of scarcity of
goods, but this is not due to lack of resources in the economy. When millions of homeowners defaulted
on mortgage loans, a trillion dollar bailout package was devised to rescue the banks, to prevent a
financial crisis. Nothing was allocated to those made homeless by loss of jobs and homes. Thus the
resources were available, but were not spent on the removal of scarcity. In what sense can we say that
the economic problem is one of scarcity, when a trillion dollars are available to bail out banks, but not
available to help those lacking the resources to pay their bills? This shows graphically that scarcity is a
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misnomer it is not lack of resources, but injustice and lack of compassion which leads to some people
not having enough for their needs. As we shall soon show, the Quran has a lot to say about these issues.
2.4 Global Inequality and Injustice
The economic system currently in operation has led to massive increase in inequalities, with the rich
getting richer and the poor getting poorer. This has happened both within countries and also globally,
across countries. In an article entitled For the 1%, of the 1%, by the 1%, Stiglitz has recorded how the
top 1% of the USA population has massively increased their share of the income and wealth of the entire
country over the past two decades. Income Inequality is now at levels rarely seen in history, with the
rich having treasures comparable to Qaroon, while Marsh (2011) writes that one in seven Americans is
poor, and the poverty rate is over 20% in young children . The scarcity of resources faced by the poor
cannot be removed by economic growth since the historical pattern shows that additional increases in
wealth will go to the rich, instead of the poor.
A similar pattern of extreme inequality holds across nations. World Bank data for 2008 shows the gross
national income per capita (GNIPC) for Norway to be $90,000 per annum, about 600 times the GNIPC
of $150 for Congo. Extreme scarcity is faced in the poorer countries, where about 25,000 people die
of causes related to malnutrition and hunger every day. However, this problem is not due to lack of
resources to feed these people. It has been estimated that only about 0.7% of the GNP of the rich
countries would be sufficient to end hunger on the planet. Instead of resources flowing from the rich
to the poor, as required to solve the scarcity problem, the flow is in the opposite direction. The poorer
countries spend billions on interest payments to the rich, taxing and depriving the poorer members
of resources which would be enough to feed and clothe them. There is ample reason to believe that
additional resources would not resolve this problem of scarcity, given the pattern of flow of wealth
from the poor to the rich.
2.5 Poverty and Famines
In a Nobel Prize winning work, Amartya Sen tested two competing hypotheses as explanations for why
famines occur:
1. [Scarcity] There is not enough food available so people starve.
2. [Entitlement] The poor are not considered to be entitled to food by the society, so they starve to
death even though food is available in adequate supply to feed everyone.
The first is the widely believed explanation for the occurrence of famines. However the analysis of Sen
pertaining to historical data about four famines shows that in each case, the second explanation fits the
facts much better.
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Sen (1982) examines four famines - the Great Bengal famine of 1943, the Ethiopian famines of 1973
and 1974, the Sahel famines of the 1970s and the 1974 Bangladesh famines. In all cases the conclusions
reached by Sen are very similar:
The food availability (scarcity) approach offers very little in the way of explanation. . . The total output,
as well as availability figures for Bangladesh as a whole, point precisely in the opposite direction.
Whatever the Bangladesh famine of 1974 might have been, it wasn't (due to scarcity of food).
Similarly, in other famines, food prices remained about the same, per capita food consumption of
non-affected areas remained the same, output (availability) of food per capita remained the same. It
was only that the society did not consider the poor to be entitled to the food, which was sometimes
exported to other areas.
According to a recent report entitled World Hunger: Twelve Myths prepared by the California based
Institute for Food and Development Policy, there is food in abundance in the world, so much so that
in the developing world, 78% of all malnourished children aged under five live in countries with food
surpluses. The USDA report, Household Food Security in the United States, 2004, says that 38.2 million
Americans live in households that suffer directly from hunger and food insecurity, including nearly 14
million children. That figure is up from 31 million Americans in 1999, a five year period over which GNP
per capita increased by roughly 10%. This is not because of scarcity of food in the USA, but because the
poor are not considered to be entitled to the food by the society, for reasons to be detailed later.

2.6 Wars
Some key details from the Stockholm International Peace Research Institute (SIPRI)s recent trends
summary are as follows:
World military expenditure in 2010 is estimated to have reached $1.62 trillion in current dollars;
This represents a 1.3 per cent increase in real terms since 2009 and a 50 per cent increase since
2001;
This corresponds to 2.6 per cent of world gross domestic product (GDP), or approximately $236
for each person in the world;
The USA with its massive spending budget, is the principal determinant of the current world
trend, and its military expenditure now accounts for just under half of the world total, at 43% of
the world total;
The combined military budgets of the world are sufficient not only to end hunger, but to provide
housing, health and education to all the poor on the planet. From this data, it should be clear the Allah
has provided ample resources for all, but:
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30:41 Corruption doth appear on land and sea because of (the evil) which men's hands
have earned, that He may make them taste a part of that which they have done, in
order that they may return.
Scarcity arises not because of lack of resources, but because of evil behavior of man. Thus the problem
cannot be solved by provision of additional goods, which only increases arrogance and intransigence of
man, and further exacerbates the problem.
17:83 for [it often happens that] when We bestow Our blessings upon man, he turns away and
arrogantly keeps aloof [from any thought of Us]
Fulfilling the commandments of the Quran for Amr Bil Maaroof by teaching morality, compassion,
justice, and humility would go a long way towards resolving the problem of wars, and hence scarcity.
Again this points to a drastically different cause for the problem of scarcity, and drastically different
solutions from the conventional ones taught in economics departments.
3. Why Growth Does Not Remove Scarcity.
Figure 4: Global food calories per capita, 1961-2003.
data from World Resources Institute
graph taken from: http://debitage.net/humangeography/population.html
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The Quran teaches us that the reason for scarcity is not the lack of goods. Allah Taala is bountiful in
provision of resources, which are sufficient for all living creatures on this planet:
11:6 There is no moving creature on earth but its sustenance dependeth on Allah.
Allah Taala has promised to provide food for all on the planet. A graph of the per food supplies available
on the planet shows that it has been increasing slightly quite contrary to Malthusian predictions.
This graph shows clearly that food is available for all, as promised by Allah. If scarcity was the problem,
then a solution would be to increase food supplies, and this is the line being taken by economists. But
if current food supplies are already adequate to feed the planet, then further increase in food supply
clearly does not address the problem. We must look elsewhere to find the reasons why this food is not
reaching the poor. Similarly, as we have shown earlier, resources being wasted on wars and destruction
are enough to provide adequately for all human needs. Again seeking growth to add to these resources
will obviously not solve the problem of scarcity they are already present in sufficient quantities for our
needs.
The global financial crisis of 2007-2008 have made clear to all that economic theories are seriously in
error, and many Noble Laureate caliber economists have called for fundamental changes. Similarly, the
current Occupy Wall Street protests demonstrate how inequities created by capitalistic economies
have caused economic suffering and misery all over the planet. We will now show that current economic
theories are based on ideas which the Quran refutes.
3.1 The Trickle-Down Effect
Economists assume that when wealth accumulates, all will benefit from it. For example, a recent
textbook on economic growth by Aghion and Hewitt (2009) states that:
Perhaps the most compelling reason (for studying it) is that economic growth is what mainly
determines the material well-being of billions of people.
Similar statements can be found in many economic textbooks. As we have seen, this statement is false.
Despite a tremendous amount of growth which has taken place, the world has more than billion people
who are leading miserable lives, crushed by poverty and unable to fulfill their basic needs.
The idea that growth will automatically lead to elimination of poverty is sometimes called the trickle
down effect. In fact, the recent data supports a Vacuum Cleaner effect: unregulated economic
growth sucks up wealth from the poor and gives it to the rich. Marsh (2010) reports that over the past
two decades, an astounding two thirds of the gains from economic growth have gone to the top 1% in
USA. If gains from growth go to the wealthy it is obvious that growth will not determine the material
well-being of billions. USDA reports about 15% of the population in the USA is food insecure (hungry),
while HUD reports more than a million homeless in USA in 2009 both of these numbers being at record
level for several decades. This is true despite substantial economic growth, as evidenced by the ability of
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the economy to spend trillions on wars.
Similarly, Rodrik (2006) reviews the global experience of the 90s and provides compelling evidence that
the guiding economic theories for achieving growth proved to be complete failures. An independent
evaluation by Mr. Fantu Cheru (2001) of World Bank policies for achieving growth states that:
Increasing malnutrition, falling school enrolments and rising unemployment have been attributed to these policies.
(there is) overwhelming evidence that SAPs have increased poverty.
Exactly contrary to the Aghion & Hewitt quote, substantial growth has been accompanied by
deterioration in material well being of billions.
3.2 The Quran Explains the Failure of Trickle-Down:
Contradicting the economists views that growth is the solution to all economic problems, the Quran
informs us that the opposite is true:
42:17 And if Allah were to enlarge the provision for His slaves they would surely rebel in
the earth, but He sendeth down by measure as He willeth. Lo! He is Informed, a Seer of His
bondmen.
If people get more than enough, they become rebellious and spread corruption on Earth. This is exactly
what we see today, when the richest and most powerful countries of the world combine forces to
exploit and bleed the poor and powerless. Over the past decade, the poorest countries in the world
have made interest payments of over $500 billion to the richest countries, without making a dent in the
principal of the loan. Clearly overall global growth has only exacerbated the problem of scarcity in the
poorer countries by tilting the balance of power further against them.
Due to certain historical reasons too complex to describe here, the study of politics was separated
from the study of economists. As a result, economists are blind to the influence of political power
on the functioning of the economic system. Once we consider the effects of power, the reasons for
the failure of trickle-down effect are obvious. Consider the question: suppose that economic growth
occurs and wealth is generated, who will these gains go to? The obvious answer is that different groups
will get shares in proportion to their power. Since wealth and power are highly correlated in modern
societies (though this has not always been the case historically), this means that the rich will capture a
disproportionate share of the gains, leading to further increase in their wealth and power. This is more
or less what the Quran tells us, saying that if we give more wealth, instead of sharing it with others to
create better outcomes, people will use the additional power to do even more exploitation. This is also
precisely what the data gathered by Marsh (2011) shows the gains from growth are captured by a
small but powerful minority of the wealthy, instead of going to the poor.
4. The Islamic Approach: Basic Concepts
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The Quran contains complete and perfect guidance for problems facing mankind:
Q5:3 This day have I perfected your religion for you, completed My favour upon you, and have
chosen for you Islam as your religion.
The message of the Quran is powerful and revolutionary. Coming to the ignorant and backwards Arabs,
the message led them to leadership of the world. It created a civilization which dominated the world for
a thousand years. As historian Marshall Hodgson (1977) testifies:
Soon after the founding of the faith, Muslims succeeded in building a new form of society,
which in time carried with it its own distinctive institutions, its art and literature, its science and
scholarship, its political and social forms, as well as its cult and creed, all bearing an unmistakable
Islamic impress. In the course of centuries, this new society spread over widely diverse climes,
throughout most of the Old World. It came closer than any had ever come to uniting all mankind
under its ideals.
As always, we face the choice between two paradigms for development. The Quran tells us that Allah
Taala shows us both the pathways, and leaves us free to choose between the two.
90:10 [Have We not] shown him the two highways [of good and evil]?
One path to growth and development is the one shown by the Prophet Mohammad S.A.W. In the short
span of 30 years, the message of Islam embodied in the teachings of our Prophet took the Arabs from
the bottom ranks to world leadership. It is surprising that instead of studying this model, most Muslims
are busy studying Western models, which focus on accumulation of wealth, as the solution to our
current problems. Muslims today have ignored the warning of the Quran:
3:196LET IT NOT deceive thee that those who are bent on denying the truth seem to be able
to do as they please on earth:
Deceived by the apparent prosperity of the West, we seek advice from western experts to learn how to
progress like them. The Western response to our request for guidance is embodied in Rostows stages
of growth which divides the 2 or 3 centuries of growth of England into seven stages, and counsels us
to follow this trajectory. Muslim economists study carefully these models of growth which counsel
patience for a century or two, while neglecting our own Islamic models which achieved spectacular
results in a very short time.
While it is impossible to cover the Islamic model for development in detail in this short article,
some essential ingredients which are diametrically opposed to dominant western teachings are pointed
out below.
4.1 The Weighty Message of the Quran
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The Prophet Mohammad S.A.W. prophesied that Islam came as a stranger and will soon become a
stranger. Today the Muslims as a whole are enveloped by Jahl-e-Murakkab or Compound Ignorance.
Not only do they not know the deep and complex message of the Quran, but worse, they believe they
DO know it. Because of this mistaken idea that we already understand the simple teachings of Islam,
we do not make the tremendous investment of time and effort required to absorb and internalize the
message of Islam. Furthermore, misunderstanding the depth of Islamic teachings leads to the additional
misunderstanding that these teachings have little to offer us in the way of a solution to our current
problems.
It is my experience that many Muslims have difficulty understanding the most elementary aspects
of the message of Islam, because it is so dramatically opposed to common and widespread ways of
understanding the world we live in. Not one but several paradigm shifts are required to learn to see
the world in the manner shown by the Prophet Mohammad S.A.W. Each paradigm shift is difficult to
achieve. Paradigm shifts require more than just reasoning; that is why a messenger was sent along with
the Quran.
2:151 Even as We have sent unto you an apostle from among yourselves to convey unto
you Our messages, and to cause you to grow in purity, and to impart unto you revelation and
wisdom, and to teach you that which you knew not
The Quran itself testifies to the weight of the message being conveyed to the Prophet:
73:5 Soon shall We send down to thee a weighty Message.
Today, the Muslims are taking very lightly a message which would crush the mountains:
59:21 Had We sent down this Qur'an on a mountain, verily, thou wouldst have seen it humble
itself and cleave asunder for fear of Allah.
The Bible also prophesies that the message to be brought by Prophet Mohammad S.A.W. (referred to as
the Spirit of Truth) is too powerful to be borne by the companions of Jesus:
John 16:12-13: I have much more to say to you, more than you can now bear. But when he, the
Spirit of truth, comes, he will guide you into all truth.
4.2 The Purpose of Creation
The most fundamental difference between Islamic and secular economic teachings is caused by
diametrically opposed views on purpose of creation of man and the universe. Islam teaches us that the
universe was created as a testing ground for human beings. Those who succeed will receive an eternal
reward while those who fail will be severely punished. According to secular thought, the universe was
created by a cosmic accident, and man came into existence through a random and purposeless process
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of evolution. Furthermore, life will finish with death, when we will turn to dust. It is no surprise then
that secular economists think that all humans should maximize pleasure during this life.
According to Islamic teachings, although the nature of the test we face is complex and multi-
dimensional, at the most fundamental level we are tested to see whether we can look through the
appearances and recognize God. The clarity with which we recognize God will be reflected in the
intensity of our love for God. Prioritizing the love of God over all worldly pleasures is a requirement of
Islam:
9:24 Say: If it be that your fathers, your sons, your brothers, your mates, or your kindred; the
wealth that ye have gained; the commerce in which ye fear a decline: or the dwellings in which
ye delight - are dearer to you than Allah, or His Messenger, or the striving in His cause;- then
wait until Allah brings about His decision: and Allah guides not the rebellious.
Before the creation of the universe, all of us were created as spiritual beings and made to recognize
and acknowledge God. Now, during our short sojourn in this world, we are required to live with the
awareness that we are in presence of God. After our death, the first question of the grave will ask us
to recognize God. The only real success is the one on the day of judgment, where those who lived in
recognition of God will receive infinite and eternal rewards.
All meaningful human activity, economic or otherwise, is directed towards achieving the success on
the day of judgment. Any other kind of activity is either meaningless or harmful in distracting us from
our purpose. In particular it is absolutely clear that the purpose of economic activity is also to earn the
pleasure of Allah. We must strive with our wealth and possessions to achieve the pleasure of Allah:
9:88 The Apostle, however, and all who share his faith strive hard [in God's cause] with, their
possessions and their lives: and it is they whom the most excellent things await [in the life to
come], and it is they, they who shall attain to a happy state!
Note that it is a simple matter of logic that one cannot decide on what is the best way to organize
economic affairs, or any human affairs, without first specifying the purpose of human life. This is
why western attempt to describe optimal social structures are deceptive they implicitly specify a
purpose, but this purpose is both concealed, and also in conflict with Islamic views.
4.3 The Methodology of Islamic Economics
Western economic theory is based on the idea that economics should be a science. The scientist is a
neutral and detached observer who studies economic events to deduce law like patterns purely for
the sake of acquisition of knowledge. This stance is explicitly prohibited by Islamic teachings. If we see
injustice (economic or otherwise), then we are required to struggle to remove it, or to speak out against
it. In the last instance, when we are completely powerless, we must feel the pain of it in our hearts less
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than this is not compatible with Eeman, or belief in God. This means that we are not allowed by Islamic
teachings to remain detached and neutral as western scientific methodology requires. For example, the
Quran condemns the unbelievers (107:3) who do not urge the feeding of the poor note that just
feeding the poor is not sufficient, we must actively campaign for this purpose.
Muslims who have attempted to fit Islamic teachings into the narrow framework of Western
methodology have puzzled over the issue of whether Islamic Economics is positive or normative. As I
have argued in Zaman (2010, Islamic Economics: A Survey of the Literature), it is neither. I have also
shown there that the claim that western economics is positive is also false. As I have elaborated at
length in Zaman (2011: The Normative Foundations of Scarcity), western economic theory is built on
normative foundations which are not made explicit.
Islamic economics, on the other hand, is transformative we as Muslims must attempt to change the
world in the directions indicated by the Quran. Furthermore, relevant knowledge will be generated in
the process of the struggle to bring about change:
29:69 And those who strive in Our (cause),- We will certainly guide them to our Paths: For verily
Allah is with those who do right.
Guidance is promised to those who struggle. This has important implications for the process by which
we teach economics. In an Islamic context, we must actively engage our students in projects designed
to relieve poverty and accomplish other economic goals ordained by Allah, for only this struggle will
generate learning. Islam does not permit us the neutral & detached stance of dispassionate scientists
who hold conferences in five star hotels for the purpose of poverty elimination and achievement of
MDG goals.
What are the goals to struggle for? How we should struggle to achieve these goals? Both of these
questions are addressed in detail in Islamic teachings. The Quran tells us that human being strive for
diverse goals:
92:4 Verily, (the ends) ye strive for are diverse.
Furthermore, man can only get what he strives for:
53:39 That man can have nothing but what he strives for;
It is therefore imperative that we choose the proper goals for our striving. Those who do not know the
purpose of human life on Earth cannot possibly have the right goals. Economists have chosen the wrong
goals to strive for and therefore are suggesting policies which are harmful for human welfare on the
planet. The Quran teaches us what the right goals are and how to strive for them, as we shall soon see.

5. The Human Factor
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The Quran informs us that man has the potential to be the best of creation:
95:4 We have indeed created man in the best of moulds,
95:5 Then do We abase him (to be) the lowest of the low,
At the same time, men have the potential to be worse than beasts. Our goal in life is to realize the
potential for excellence which is within us. In Islamic terms, development refers to this spiritual
development. The Prophet Mohammad S.A.W. was the best of teachers, and his companions were the
best of students. It was the revolution within the hearts of the people that brought about the rapid rise
of Muslims to world leadership. The Quran tells us that
8:53 That is because Allah never changeth the grace He hath bestowed on any people until
they first change that which is in their hearts, and (that is) because Allah is Hearer, Knower.
Internal change is a pre-requisite for external change. Islamic teachings are concerned mainly with this
internal change. However a radical difference between Islam and other spiritual traditions is that Islam is
against withdrawing from the world to bring about this spiritual change:
57:27 But as for monastic asceticism, We did not enjoin it upon them: they invented it
themselves out of a desire for Gods goodly acceptance.
God does not ask us to be ascetics and withdraw from the world. Rather, Allah requires us to struggle
with the world with the intention of achieving spiritual progress. In particular, wealth is a means
towards achieving spiritual progress:
92:18 he that spends his possessions [on others] so that he might grow in purity
There are several traditions of the Prophet which make explicit the idea that engaging with the world
is a superior route to spiritual progress over worship, meditation, or retirement from the world. It is
narrated in Sahih Muslim and Bukhari that according to Abu Huraira R.A., the Prophet S.A.W. said that
the one who strives to help a widow or a needy person, earns reward like one who goes for Jihad, or one
who stays up all night in worship and fasts all day.
5.1 Economists Reverse Priorities
Weber (1930, Chapter 2) writes that the spirit of capitalism is the pursuit of wealth as an end in itself,
to the point of being absolutely irrational. The Islamic stance on this pursuit of wealth is clearly stated
in the Quran:
9:34 They who hoard up gold and silver and spend it not in the way of Allah, unto them give
tidings (O Muhammad) of a painful doom.
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Islam condemns the pursuit of wealth for its own sake it is permissible only when the wealth is to
be spent for the sake of Allah, as a means of purification of the soul. Thus wealth can be a means of
human development. Because wealth is taken as the final objective, economists reverse these priorities.
Human beings are considered as a means of producing goods mathematically, this is expressed in the
production function, where human beings are an input into the production of wealth. That this is a
wrong approach has recently become clear to many economists, but the clarity of the Quran on what
is the right approach is not available in the western literature. We discuss below four lines of thinking
which led (some) economists to (reluctantly) change their focus from the accumulation of wealth onto
the human beings who produce this wealth:
Growth Accounting: According to the standard economic models, it is investment in capital which leads
to growth. However studying the data on growth led to the conclusion that there was a large residual
a portion of growth not accounted for by investments in capital. Search for other causes of growth led to
the human factor. It appears that investment in human capital could account for some portion of the
residual. Since then, models have paid more attention to the possibility the growth can be achieved by
investing in human beings. While an improvement over the previous disregard of the human factor, this
insight does not go far enough. It continues to evaluate human beings only in terms of their ability to
produce wealth, which is a complete reversal of priorities from Islamic ones.
Human Resources: Recognition of the importance of human beings in the process of wealth creation
has led to the emergence of the field of Human Resource Management. A recent publication by
the World Bank entitled Where is the Wealth of Nations? showed that resources embodied within
human beings are worth more than the natural resources. Wealthy nations are wealthy because their
populations are more skilled. Even though this gives more recognition to human beings, it is a travesty
to consider human beings as a means of production of wealth. Islam teaches us that every human being
is infinitely precious, a lesson not within the ambit of these western calculations.
Empirical Experience: Conventional economic policies which focus on development of industries and
institutions, at the expense of human lives, have been applied all over the world with disappointing
results. In the process of applying these economic policies in Pakistan, Mahbubul Haq (cited in Bari,
2011) recognized the need to sacrifice human lives to the gods of economic growth. He wrote that
economic growth is a brutal, sordid process... making the labourer produce more than he is allowed
to consume for his immediate needs, and to reinvest the surplus thus obtained. To his great credit, he
learned from his experience. He was horrified by the outcome of these economic policies, which led
to the concentration of wealth in the hands of the 22 families, and increase in misery of millions. He
eventually came to the conclusion that , after many decades of development, we are rediscovering
the obviousthat people are both the means and the end of economic development. This crucial
insight of Mahbubul Haq, born of bitter experience, is still not understood by economists and policy
makers.
Theoretical Developments: In the preface to his book Development as Freedom, Amartya Sen writes
that we live in a world of unprecedented opulence. Yet, this tremendous increase in wealth co-exists
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with tremendous amounts of deprivation, destitution and oppression. He argues that it is essential
to take into account the agency of human beings, to resolve these problems of the co-existence of
wealth and deprivation (scarcity). Later in the book, he argues that development is really about the
development of capabilities within human beings. Bravo! this is about as far as one can go from a
secular platform. Specifying how to develop human beings is what the Quran alone can teach us.
All of these different lines of thought converge on the idea that it is a mistake to prioritize the
production of wealth. Development is about human beings. But how should human beings be
developed? This is a question which only the Quran can answer.
5.2 Human Development
The Quranic teachings on the complex and dual nature of human beings are not within the compass
of modern western thinkers, and not even grasped by many Muslims who write on these and related
issues. Every human being has within him simultaneously, the capabilities for tremendous good, as well
as tremendous evil, as indicated by the Quranic Ayat at the beginning of this section. Understanding this
duality has a dramatic impact on design of suitable economic policies. It also resolves many important
and consequential debates which have raged through the centuries in secular western philosophy. We
first discuss these western errors below, as they have also impacted on Muslim thought.
5.2.1. Are Humans Good or Evil?
Western philosophers disputed this issue because the design of a secular political system depends
on the answer to this question. Hobbes thought that man was fundamentally evil, and therefore
argued that a strong and powerful government was required to curb and control these evil tendencies.
Rousseau thought that man was fundamentally good and therefore advocated anarchy, or no
government at all. Locke took a middle path, suggesting that a minimal amount of governmental control
would suffice to control the evil tendencies of man. The idea which eventually emerged as dominant
was the paradox propounded by Adam Smith: even though man is basically selfish, society would
benefit by allowing all men to act selfishly. This has been the dominant belief among twentieth century
economists until recently.
Recent research has shown that generous and trusting behavior among humans is very common. For
example, in a one-shot prisoners dilemma game among anonymous strangers, cooperation is observed
far more often than predicted by economic theories. Ledyard (1995) explores this anomaly in a section
entitled Are humans selfish or cooperative? Islam offers us the insight that this is not a correct
question to ask. Every human being has potential for both kinds of behavior, as the ayat cited in the
beginning of this section suggest. Base desires are built into every soul:
8:67 You may desire the fleeting gains of this world-but God desires [for you the good of] the life
to come: and God is almighty, wise.
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Our test consists of seeing whether we can rise up above these base desires:
79:40 But unto him who shall have stood in fear of his Sustainer's Presence, and held back his
inner self from base desires,79:41 paradise will truly be the goal!
Recognition of this dual nature of all human beings has far reaching implications, some of which are
explored below.
5.2.2 Failure of the Scientific Method
Human beings are free to choose the path to their Lord:
73:19 Lo! This is a Reminder. Let him who will, then, choose a way unto his Lord.
This creates a fundamental unpredictability in human behavior. Ignorant savages can choose to be
good, and Saints can be tempted to become sinners. Past behavior does not predict the future, because
humans are always free to choose the good (or the bad). There is nothing in the history of the Arab
Bedouins which would allow us to predict their sudden rise to world power following the advent of
Islam.
The scientific method, which works very well for inanimate particles, fails as a methodology for studying
human behavior in many dimensions.
In the first place, the goal of observing and describing human behavior objectively, is misguided. The
question of whether human beings are selfish or generous is not correctly posed. Every human has
the capacity for both kinds of behavior; experimental evidence also points in this direction. We can
try to find what environments will evoke generous responses, and what environment will elicit selfish
behavior. The Quran is full of exhortations to be generous, and condemnation of stinginess, so inviting
towards good behavior is one way of eliciting good behavior.
In the second place, the attempt to describe human behavior actually ends up prescribing it. Economists
describe rational behavior as selfish, and argue that this type of behavior leads to socially optimal
outcomes. Those who study economics end up acting along these lines; many studies shows that
economists are more selfish see Kirchgssner (2005) for a summary.
Thirdly, and most importantly, the fact that humans are free to choose whether they will be generous
or selfish requires us to re-think our goals in studying economics. There are no universal laws governing
human behavior at least, none of the type formulated in economic theories. We can all intuitively and
directly sense our own freedom to act in ways that are not subject to description by any mathematical
law. Instead of being (pseudo) scientists and trying to describe the laws governing human economic
activity, we must be more ambitious. We must describe what ideal human behavior is, and how we can
encourage and promote it. This is precisely what the Quran does.
5.2.3 Ideal Human Behavior
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Allah Taala provided us with a living model for ideal human behavior:
33:21 Ye have indeed in the Messenger of Allah a beautiful pattern (of conduct) for any one
whose hope is in Allah and the Final Day, and who engages much in the Praise of Allah.
While there are many dimensions to this excellence, one of the key aspects which related to economics
is the compassion and sympathy for all human beings. The Prophet has been sent as a mercy for all:
21:107 We sent thee not, but as a Mercy for all creation.
His heart was full of sorrow for those refused to accept the guidance from God, thereby causing harm to
themselves and to others:
18:6 But wouldst thou, perhaps, torment thyself to death with grief over them if they are not
willing to believe in this message?
He had compassion, concern and mercy:
9:128 INDEED, there has come unto you [O mankind] an Apostle from among yourselves: [170]
heavily weighs -upon him [the thought] that you might suffer [in the life to come]; full of concern
for you [is he, and] full of compassion and mercy towards the believers.
The generosity of our Prophet Mohammad S.A.W. is also well known. He never turned away anyone
who sought his help. After observing how much he gave out of the wealth that accrued to the Muslims
after the conquest of Mecca, Safvan bin Umayyah remarked that (the prophet) was as generous as the
rain.
The implications of struggling to achieve this excellence in conduct in ourselves, and encouraging others
in this direction, are explored in the next section.
6. The Islamic Solution: Fundamentals
Having spelled out some basic elements of the Islamic worldview, which is radically different from that
of secular economists, we are in a position to discuss the Islamic approach to economic affairs. In this
dimension of our life, as in all others, our goal is to strive for excellence in conduct:
67:2 Who hath created life and death that He may try you, which of you is best in conduct; and
He is the Mighty, Forgiving,
The heart of every human being is a battleground between the forces of good and evil. Base desires
have been planted within every soul, but also a recognition of good and noble and the capacity to
overcome these desires is present. Life is entirely about winning these battles within ourselves, which is
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another name for excellence in conduct. The Quran provides guidance about the nature of the opposing
forces, and how we can win these battles. It is emphatically not consequentialist actions are not
judged according to the observed outcomes or consequences. Rather, victory or loss is an internal
matter, to be judged by the impact of the struggle on the heart.
Because the consequentialism built into economic theory is implicitly absorbed by all students, including
Muslims, it is important to re-emphasize that this is directly opposed to Islamic teachings. To give just
one example from among many, the Quran tells us about the Ashabul-Ukhdood, who were burned alive
because they refused to renounce their faith. Their supreme success in the spiritual battleground led to
their apparent failure in terms of the worldly outcome. For Muslims, they achieved the ultimate success,
whereas those who judge by consequences will be forced to consider them to be failures.
A common objection to the approach to Islamic Economics being espoused here is that it is idealistic.
A detailed response to this objection is given in Section 5 of an earlier paper, Zaman (2012b). A brief
response can be summarized as follows. Contrary to the self-projected image that social science is
positive, in fact social science is all idealistic an ideal society is described and then methods to move
toward that ideal are discussed. Capitalism describes perfect competition, free markets, no externalities,
monopolies or other market imperfections, perfect information, as an ideal state and theorizes about
how we can improve real market to move towards this ideal state. Similarly, communism starts by
describing an ideal state in which workers are the owners of means of production in a classless and
cooperative society based on taking care of the needs of all members. Then it describes strategies
on how to get there. Similarly the Quran and Hadeeth describe ideal characteristics of humans and
encourage human to live upto these lofty ideals, while recognizing human failings at the same time.
There is no way to avoid value judgments in any science which deals with human beings, and Islam
makes them explicit, instead of hiding them within the framework of the discussion. Zaman (2012z)
shows that the fundamental concept of scarcity, which is the foundation of neoclassical economics, is
a normative concept.
6.1 The Dual Nature of Wealth
Just like all dimensions of our existence on this earth, our wealth and worldly possessions are a part of
our trial
8:28 and know that your worldly goods and your children are but a trial and a temptation, and
that with God there is a tremendous reward.
The precise nature of this trial, and how we can succeed in it, is spelled out in other texts. According
to a Hadeeth, the ideal amount of wealth is one that is just sufficient for our needs. Both excess and
deficiency are trials from Allah, as is made explicit in the following ayat:
89:15 BUT AS FOR man, [8] whenever his Sustainer tries him by His generosity and by letting
him enjoy a life of ease, he says, "My Sustainer has been [justly] generous towards me";
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89:16 whereas, whenever He tries him by straitening his means of livelihood, he says, "My
Sustainer has disgraced me!"
Both wealth and poverty are trials from Allah. One way to fail in this trial is to believe that I have been
given wealth because I deserve it. This was the error of Qaroon. It is also the error committed by the
Calvinists, who thought that wealth was a sign of the pleasure of God. Max Weber has suggested that
it is this Calvinist belief that led to the rise of capitalism. The Calvinists pursued wealth, and spread the
idea of the pursuit of wealth, because of this theological belief.
Success in the trial by wealth occurs if we spend the wealth in manners ordained by Allah. In particular,
those who have more than their needs are asked to spend it on others. For those who are obedient to
God, wealth can be a blessing:
71:10 And I have said: Seek pardon of your Lord Lo! He was ever Forgiving.
71:11 He will let loose the sky for you in plenteous rain,
71:12 And will help you with wealth and sons, and will assign unto you Gardens and will assign
unto you rivers.
For those who are disobedient, wealth can increase their rebellion towards God. In this case, wealth
becomes a punishment from God, as it was for Qaroon.
9:85 And let not their worldly goods and [the happiness which they may derive from] their
children excite thy admiration: God but wants to chastise them by these means in [the life of]
this world, and [to cause] their souls to depart while they are [still] denying the truth.
This is substantially more sophisticated than the economists views that wealth is an unmixed blessing
the more you have the better off you are.
6.2 Overcoming the Love of Wealth
The Quran teaches us not only the goals of our struggles, but also the strategies which should be used to
achieve success in our struggles.
On the one hand, the love of worldy possessions and wealth is built into the hearts of human beings:
3:14 ALLURING unto man is the enjoyment of worldly desires through women, and children,
and heaped-up treasures of gold and silver, and horses of high mark, and cattle, and lands. All
this may be enjoyed in the life of this world - but the most beauteous of all goals is with God.
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At the same time, we are required to overcome this love, and replace it with the love of God. This is
actually part of the test. If we had no desire, and if the evil did not attract us, then we would be like
angels, and would face no difficulty in doing good deeds. The reason that man is potentially superior to
angels is precisely because our worldly desires place obstacles in our path towards God. In order to help
us in our struggle towards God, the Quran offers us many strategies which we can use.
One strategy to achieve this goal is to spend or give away things that we love:
3:92 Ye will not attain unto piety until ye spend of that which ye love. And whatsoever ye spend,
Allah is aware thereof.
Note this this the opposite of the idea of utility maximization. Instead of consuming that which we love,
if we give it away, that will weaken the love of material goods, and create the love of Allah in our hearts.
Eventually, when the love of Allah comes to dominate the love of material possessions, it will lead them
to feed others for the sake of Allah:
76:8 And they feed, for the love of Allah, the indigent, the orphan, and the captive.
The training of the Prophet S.A.W. led to excellence in conduct among the Companions, which is praised
in the Quran. They learned to put the needs of others over their own selves:
59:9 who harbour in their hearts no grudge for whatever the others may have been given, but
rather give them preference over themselves, even though poverty be their own lot: for, such as
from their own covetousness are saved - it is they, they that shall attain to a happy state!
The Quran teaches us that greed and covetousness are present in the human heart, but these are
characteristics which must be overcome to achieve excellence. This contrasts with the promotion of
greed as a key to the accumulation of wealth; this has been advocated by Keynes and his followers.
6.3 The Distinction Between Needs and Wants
One of the founding pillars of methodology of modern economic theory is the idea of Consumer
Sovereignty. This embodies two separate assumptions:
1. People know what is best for them, and they make choices in accordance with this knowledge.
2. The economist need not differentiate between needs and wants; his task is to fulfill all demands,
regardless of their origins.
Both of these ideas are directly and explicitly contradicted by the Quran. Regarding the idea that people
know what is best for them, the Quran states that:
25
2:216 it may well be that you hate a thing while it is good for you, and it may well be that you
love a thing while it is bad for you: and God knows, whereas you do not know.
Based on the wrong idea that people always know what is best for them, economists fail to differentiate
between needs and wants. For example, Samuelson and Nordhaus (1989, p 26) state that economists
must reckon with consumer wants and needs whether they are genuine or contrived. Similarly,
Stigler and Becker (1977) make the normative claim that Tastes are the unchallengeable axioms of a
man's behavior: In contrast to this teaching, which is fundamental to modern economic theory, the
Quran tells us that needs should be fulfilled, but strongly warns against fulfilling idle desires. The idea
of consumer sovereignty, is equivalent to making our desires our God. This is an article of faith for
economists, but is strongly rejected in the Quran as follows:
45:23HAST THOU ever considered [the kind of man] who makes his owndesires his deity, and
whom God has [thereupon] let go astray, knowing [that his mind is closed to all guidance],and
whose hearing and heart He has sealed, and upon whose sight He has placed a veil? Who,
then, could guide him after God [has abandoned him]? Will you not, then, bethink yourselves?
It is part of our struggle for excellence in conduct to fight with our idle desires, and not let them dictate
our behavior and action. The wisdom of the message of the Quran, the foolishness of the Keynes,
Samuleson, Stigler, Becker and their followers is documented below.
6.3.1 Wants Can Never Be Fulfilled
In defining the job of the economists to be the fulfillment of all needs and wants, regardless of how
they originate, economists set themselves an impossible task. Wants are insatiable, and increase with
increasing wealth. This is demonstrated by the empirical evidence given earlier, where increasing levels
of wealth have not led to increasing satisfaction with life, contrary to the hopes of economists. As stated
in the Quran:
102:1 (Asad) YOU ARE OBSESSED by greed for more and more
102:2 until you go down to your graves.
Also, a Hadeeth informs us that:
Al-Bukhari: Volume 8, Book 76, Number 447: Narrated Anas bin Malik: Allah's Apostle
said, "If Adam's son had a valley full of gold, he would like to have two valleys, for
nothing fills his mouth except dust (of the grave). And Allah forgives him who repents to
Him."
Contrary to the idea of Keynes that sufficient wealth would lead to contentment, the Quran informs
us that the opposite is true. The more you have, the more you desire. This means that the solution to
scarcity by provision of more goods cannot work. The problem of scarcity cannot be solved since all
wants of men can never be fulfilled.
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6.3.2 Islam prohibits pursuing idle desires
In contrast to the economists views that we should not differentiate between wants and needs, Islam
teaches us to not pursue idle desires:
79:40 But unto him who shall have stood in fear of his Sustainer's Presence, and held
back his inner self from base desires, 79:41 paradise will truly be the goal!
Part of learning excellence in conduct is learning self-control, or the ability to restrain ourselves from
impulsive but harmful actions. Indeed, it is only by the grace of God that we can control our inner
desires which urge us to evil acts.
12:53 "Nor do I absolve my own self (of blame): the (human) soul is certainly prone to evil,
unless my Lord do bestow His Mercy: but surely my Lord is Oft- forgiving, Most Merciful."
6.4 Moderation in Consumption
One of the keys to solving the economic problems of man is moderation in consumption. Because
economists take fulfillment of all needs and wants as their task, and teach utility maximization that
is unlimited consumption is desirable for all humans, the concept of moderation does not fall within
the scope of modern economic theory. The Quran urges moderation not only in consumption, but also
in spending for the sake of Allah:
25:67Those who, when they spend, are not extravagant and not niggardly, but hold a just
(balance) between those (extremes);
The Quran differentiated between human needs and idle desires, and encourages fulfillment of one, and
suppression of the other. This is what leads to moderation in consumption:
7:31 O Children of Adam! wear your beautiful apparel at every time and place of prayer: eat
and drink: But waste not by excess, for Allah loveth not the wasters.
Note that, in contrast with many other religious and spiritual traditions, Islam does not ask for
asceticism. We can eat and drink freely, and wear beautiful clothing, provided that we do not go
to excess and do not waste. These teachings, currently not found in any economic textbook, are
desperately needed today. As the gap between the poor and rich has widened, extremely luxurious and
wasteful lifestyles have come into existence, and are being promoted as desirable. The methodology
and strategy of the Quran is to persuade there is no compulsion in religion. Therefore the Quran
and teaching of Islam seek to persuade people to moderate their desires (for maximization of worldly
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pleasures). One way to persuade is to explain that seeking to fulfill these desires will not lead to
happiness. The pursuit of worldly pleasures is an illusion:
57:20 Know ye (all), that the life of this world is but play and amusement, pomp and mutual
boasting and multiplying, (in rivalry) among yourselves, riches and children. . And what is the
life of this world, but goods and chattels of deception?
Some aspects of Islamic rules pertaining to moderation in consumption are discussed below. These rules
relate closely to the idea that pursuing our desires appears attractive but does not in fact lead to good
outcomes it is an illusion, a mirage, which is currently advocated by economists.
6.4.1: Avoiding Israf and Tabzeer: Excess & Waste
The Quran prohibits Israf and Tabzeer, or excess and wasteful consumption.
6:141 For it is He who has brought into being gardens-[both] the cultivated ones and those
growing wild [127] -and the date-palm, and fields bearing multiform produce, and the olive tree,
and the pomegranate: [all] resembling one another and yet so different! [128] Eat of their fruit
when it comes to fruition, and give [unto the poor] their due on harvest day. And do not waste
[God's bounties]: verily, He does not love the wasteful!
Allah Taala has provided for us in abundance, and with great diversity. The problem is not the scarcity
bugaboo created by economists, but inequity and waste highlighted at the end of these ayat.
Astonishing amounts of inequity in consumption exist today, because the rich do not recognize the
rights of the poor. The top 10% consume about 60% of the entire global consumption, while the bottom
10% only get access to 0.5%. This issue, as well as the idea that haves should share with the have nots,
is not mentioned in any conventional economic textbook. Today the amount spent on cosmetics in
the USA ($8 billion) is enough to provide basic education to the entire planet ($6 billion). Similarly,
the amount spent on pet foods in the USA and Europe ($17 billion) is enough to make the shortfall in
nutritional and basic health needs for the entire planet ($13 billion).
Contrary to the economists views that people know what is best for them, excess consumption actually
causes many kinds of harm to the consumer. For instance, overall obesity-related health spending
reached $147 billion last year, double what it was nearly a decade ago
1
. This Israf and Tabzeer is enough
to feed, clothe, house, educate and provide healthcare for all those who need it on the entire planet.
1
About one-third of U.S. adults (33.8%) are obese. Approximately 17% (or 12.5 million) of children and adolescents
aged 219 years are obese. [Data from the National Health and Examination Survey (NHANES)]
28
Similarly, a huge amount of money is simply wasted. For example, a recent study by Dennis et. al. (2005)
found that over $10 billions worth of goods were purchased but never used by consumers in Australia
alone. Annually, about 300 million tons of garbage is thrown away by US consumers. It is estimated
that the natural resources in terms of wood, metal, etc. in this trash would be enough to meet planetary
needs for more than a century. This waste impacts on the soul by producing guilt in those who have a
conscience. The study showed that the majority do feel guilty at this wasteful consumption, but that
the younger generation does not feel as much guilt. This shows the decline in morality that has been
occurring in the west. It seems clear that the Quranic diagnosis of the economic problem as being
inequity and waste is far more accurate than the economists scarcity.
In addition to internal harmful effects, there are also devastating external harmful effects. Wasteful
consumption by the unheedful rich is leading to disaster on a planetary scale. Hawken et. al. (1999)
write that:
The industrial revolution that gave rise to modern capitalism greatly expanded the possibilities for the
material development of humankind. It continues to do so today, but at a severe price. Since the mid-
eighteenth century, more of nature has been destroyed than in all prior history. While industrial systems
have reached pinnacles of success, able to muster and accumulate human-made capital on vast levels,
natural capital, on which civilization depends to create economic prosperity, is rapidly declining, and the
rate of loss is increasing proportionate to gains in material well being.
6.4.2 Avoiding Conspicuous Consumption
To a far greater extent than commonly realized, economic theories assume that there are no
externalities in utility functions that is, people do not envy others, and are not drive by the desire to
emulate luxurious consumption patterns. Empirically, the opposite is true and is widely observed. The
theory of conspicuous consumption of Veblen is based on his observations.
Islam prohibits Muslims from envying others and teaches strategies to prevent envy. The Prophet told
us to look at people less fortunate than ourselves in worldly affairs, so that we feel thankful for what we
have. The Quran states:
(Q4:32) Hence, do not covet the bounties which God has bestowed more abundantly on some
of you than on others. Men shall have a benefit from what they earn, and women shall have a
benefit from what they earn. Ask, therefore, God [to give you] out of His bounty: behold, God
has indeed full knowledge of everything.
Making others envy us, via conspicuous consumption, is also prohibited in Islam. The rich should
conceal their riches to prevent envy the exact opposite of conspicuous consumption. At the same
time, the poor are encouraged not to envy the rich, but to be content with their lot. True richness is
that of a heart with a generous disposition. Taseen (1998, p. 153-156) cites the Quran and Hadeeth in
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support of these principles; for example:
Those who earn to avoid having to ask from others, and to spend on their families and neighbors will
meet Allah with shining face like that of the full moon. Those who earned halal but with intent to show
off, and pride himself over others, will meet with an angry Allah.
From Veblen (1899) to Lane (2001) and Layard (2005), many have identified envy as an important source
of waste and unhappiness in capitalist economies.
One important feature of simplicity is to live in a way so as to not provoke envy or jealousy. One of
the reasons for which Qaroon was condemned was his parading his wealth to the envy of his nation.
Muslims are commanded to dress and feed their slaves as equals. Those who have more than their
neighbors are told to share their blessings or else consume the extra concealing it from others so as to
not cause envy.
The second caliph of Islam, who ruled a large and expanding empire, was asked why he was eating very
coarse bread. He responded that not all in the Ummah could afford to eat bread from refined flour. If
we feel compassion for all human beings, we will have difficulty swallowing luxuries when we know that
millions of children are hungry.
6.4.3 Simple Lifestyles
Economists assume that it is best for every individual, and for the society, to maximize utility, which
is insatiable. This translates to the pursuit of luxurious lifestyles as the object of life. This is in stark
contrast to the simplicity in lifestyle which is the ideal of Islam. The lifestyle of the Prophet s.a.w., who
is the perfect model for us all, was simple in the extreme. He rarely had a second pair of clothing, apart
from the one he wore, which was patched in many places. He did not eat his full two times in a row, and
months would pass without a fire in his kitchen. This simplicity was maintained throughout his life, even
though he received huge gifts on many occasions, which he distributed to the poor and the needy. His
example was followed by Abu-Bakr and Umar, who are unparalleled in their combination of worldly rule
with extreme simplicity of lifestyle.
Should we pursue luxurious lifestyles? The Quran warns us not to be deceived by the apparent luxury
of the unbelievers. Because the treasures of this world are meaningless, another verse states that Allah
Taala would provide all the luxuries to the unbelievers, but for the fact that it would be too severe a
test for the believers:
43:33 And were it not that (all) men might become of one (evil) way of life, We would provide,
for everyone that blasphemes against ((Allah)) Most Gracious, silver roofs for their houses and
(silver) stair-ways on which to go up, 43:34 And (silver) doors to their houses, and thrones (of
30
silver) on which they could recline, 43:35 And also adornments of gold. But all this were nothing
but conveniences of the present life: The Hereafter, in the sight of thy Lord is for the Righteous.
Recent research shows that even when evaluated with respect to the wordly goals of happiness and
contentment, the pursuit of luxury is harmful, and seeking simplicity in lifestyle is beneficial. This is
because people quickly get used to luxury so that it does not provide them with additional happiness.
However supporting a luxurious lifestyle requires hard work. In addition, the luxury of one person leads
to unhappiness of many who seek to emulate, but are unable to do so. In contrast, simple lifestyles
allow satisfaction with relatively little effort, can be achieved for all, and leave one free to do things
which really matter, instead of wasting our precious lives on an empty pursuit of consumption.
6.5 Spend Excess Wealth on Others
An extremely important ingredient of the message of Islam is to spend wealth in excess of our needs on
others.
2:219 They ask thee how much they are to spend; Say: "What is beyond your needs."
Islam encourages us to spend on our legitimate needs, and even to spend on adornments and
decorations which make our life pleasant. But it asks to spend the excess which remains on others.
This is far different from the attitudes towards wealth which are developed in capitalist economies and
which are implicit in economic theories.
6.5.1. Reciprocity
For one thing, capitalism encourages the irrational pursuit of wealth for its own sake. There are many
who have wealth more than enough for their lifetime, yet they continue to pursue wealth. This is
primarily because they do not know the purpose of life. Islam permits pursuit of wealth only when the
intention is to spend it for the sake of Allah.
In order to overcome our love of wealth, which prevents us from giving, the Quran teaches us that
everything we have has been given to us by Allah, and therefore we should do good with it, just as Allah
Taala has been bountiful and generous towards us.
28:77 do good [unto others] as God has done good unto thee;
The unbelievers argue, exactly like Qaroon, that we have earned our property and therefore we have
the right to do with it as we please:
28:78Answered he: This [wealth] has been given to me only by virtue of the knowledge that is
in me!
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6.5.2. Rights to Property
Similarly, current theories of private property hold that the owner has an absolute right, and can do
as he pleases with his property. This idea that man can do whatever he wants with his property is
forcefully rejected by Quranic teachings. When the Prophet Shuaib Aleyhim-us-Salam tried to convey
this message to his people, they responded as follows:
(Q 11:87) They said: "O Shu'aib! Does thy religion command thee that we leave off doing what
we like with our property? "
Islam teaches us that all of the resources on the planet have been given to us as a trust from God:
33:72 (Picktall) Lo! We offered the trust unto the heavens and the earth and the hills, but they
shrank from bearing it and were afraid of it. And man assumed it. Lo! he hath proved a tyrant
and a fool.
These resources do not belong to us in an absolute sense. Rather they have been entrusted to us. We
can utilize them for our benefit, but we must also take care to preserve them and pass them on.
6.4.3 The Rights of the Poor on the Wealth of the Rich
Furthermore, the Quran states that the poor have a right to the wealth of the rich:
70:24And in whose wealth there is a right acknowledged
70:25For the beggar and the destitute;
Q68:17-27 describes people whose garden was destroyed because they wanted to avoid giving from it
to the poor.
6.4.4 Generosity Liked by God
The Quran teaches us that we should not be afraid that we will become poor if we spend on others.
2:268 (Asad) Satan threatens you with the prospect of poverty and bids you to be niggardly,
whereas God promises you His forgiveness and bounty; and God is infinite, all-knowing,
Shaitan encourages stinginess and miserliness. In contrast, Allah Taala encourages and likes generosity:
2:195Spend your wealth for the cause of Allah, and be not cast by your own hands to ruin; and
do good. Lo! Allah loveth the beneficent.
Similarly, the Prophet Mohammad (peace be upon him) said, "The generous man is near Allah, near
Paradise, near men and far from Hell, but the miserly man is far from Allah, far from Paradise, far from
men and near Hell. Indeed, an ignorant man who is generous is dearer to Allah than a worshipper who is
miserly." [Tirmidhi]
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While it receives no mention in economic textbooks, developing generosity and compassion for the poor
is a crucial element in the Islamic approach to economic affairs.
7 The Heart of An Islamic Society
The fundamental and founding principles of an Islamic Society are radically different from those of
a secular capitalist society. Among the first acts of the Prophet S.A.W. upon arrival in the secure
environment of Medina was to set up the brotherhood of the newly arrived immigrants (Mohajireen)
and the residents of Medina (Ansar). This is described in the Quran:
8:63 And (moreover) He hath put affection between their hearts: not if thou hadst spent all
that is in the earth, couldst thou have produced that affection, but Allah hath done it: for He is
Exalted in might, Wise.
At the heart of an Islamic society is the love between members which cannot be purchased by all the
treasures in the world. The Prophet s.a.w. spent a lot of effort in removing inter-tribal frictions and
rivalries, and uniting all the Muslims on the common platform of Islam. In a caring and cooperative
society, everyone is rich, because they can count on the help of others in their time of need. A Hadeeth
informs us that the Ummah is like one body if any part is damaged, the pain is felt by the whole body.
Furthermore, this love extends to all human beings, whether or not they are Muslims. The Prophet
S.A.W. who is the role model for us in all dimensions of life, felt so much sorrow at the heedlessness
and the consequent loss faced by the unbelievers that he was consoled in the Quran on several
occasions:
18:6 But wouldst thou, perhaps, torment thyself to death with grief over them if they are not
willing to believe in this message?
The struggle to create an Islamic society requires working on the following four major dimensions.
7.1 The Ummah
The creation of unity among the Muslims is commanded by the Quran in many places.
23:52 And, verily, this community of yours is one single community, since I am the Sustainer of
you all: remain, then, conscious of Me!
For collective action, some form of community is necessary. Islam offers the ideal of universal
brotherhood, without compulsion, which is dramatically superior to the concept of community based on
geographical or linguistic ties, currently dominant in the west.
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49:10 All believers are but brethren. Hence, [whenever they are at odds,] make peace
between your two brethren, and remain conscious of God, so that you might be graced with His
mercy.
This brotherhood, in an attenuated form, still exists in the hearts of Muslims. As Malcolm X. (1965)
testifies, during his Hajj, he found a spirit of unity and brotherhood that my experiences in America had
led me to believe never could exist between the white and non-white Similarly, well known historian
Toynbee (1951) testifies that: The extinction of race consciousness as between Muslims is one of the
outstanding moral achievements of Islam. In the contemporary world there is, as it happens, a crying
need for the propagation of this Islamic virtue of tolerance and peace.
Although some exigencies can lead to conflict between the community of the believers and those
outside it, the main purpose of this community is serve all mankind by inviting all human beings towards
the good, and by working against injustice and evil.
3:110 Ye are the best of peoples, evolved for mankind, enjoining what is right, forbidding what is
wrong, and believing in Allah.
Both Quran and Hadeeth urge the Muslims to adopt the best behavior towards those who have not yet
accepted the message. For example,
29:46And do not argue with the followers of earlier revelation otherwise than in a most kindly
manner.
There are many testimonials to the good treatment of minorities under Islamic rule. Menocal (2002,
The Ornament of the World: How Muslims, Jews and Christians Created a Culture of Tolerance in
Medieval Spain) describes how the Muslim rulers of Al-Andalus created a unique culture of tolerance
under which all three communities of Jews, Christians, and Muslims thrived and achieved tremendous
progress on many intellectual and cultural fronts.
7.2 Cooperation
This brotherhood among Muslims leads to cooperation, as ordained by Allah:
5:2 help one another in furthering virtue and God-consciousness, and do not help one another
in furthering evil and enmity; and remain conscious of God:
One of the central lessons of modern economic theory is the idea of competition which creates
efficiency. The weak are ruthlessly eliminated as the law of the jungle operates, leading to the
survival of the fittest. We see the effects of these western economic theories in operation today as
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the rich countries extract interest payments in billions of dollars from the poor countries, resulting
in malnutrition, hunger and death of millions. We see the strong attack the weak to capture their
resources without any regard for morality. Islam teaches us to struggle against these beastly
characteristics within the human soul, and to struggle to achieve the potential for excellence which
co-exists with the evil within each human being. Islamic teachings stress cooperation, community,
and compassion. The strong are supposed to use their strength to help the poor to survive instead of
ruthlessly eliminating them. There are many traditions teaching us to look out for the welfare of the
weak:
Sad (Radi Allahu Anhu) reports that Rasulullah (Sallallahu Alaihi Wasallam) said: Allah assists this
Ummah (nation) by virtue of the weak and the disabled, their Duas, Salaah and their sincerity. [Nasai]
According to the Hadeeth, one Muslim must not bid or interrupt another one while the sale process
is taking place. He cannot offer to undercut, exactly contrary to the competitive idea. It is said that
Muslim traders in Indonesia converted the country to Islam by their display of superior ethics in their
trading practices. In particular, in the cooperative model, one trader would say that he has had sufficient
profit for the day, and recommend the buyer to go to the other shop. Also, Islamic law requires the
seller to disclose any defects in his merchandise, quite the opposite of the Let the buyer beware
paradigm.
7.3 Responsibility
A Muslim society must collectively take care of the basic needs of all its members, including health,
education, food, housing and provision of opportunities for employment. In Guarantee of a Minimum
Standard of Living in an Islamic State, Siddiqi (1995) gives a comprehensive survey. Maududi (1960,
p. 331) reports that a group of eminent Islamic scholars agreed to the following item as essential for
the constitution of an Islamic state: It shall be the responsibility of the Government to guarantee the
basic necessities of life, i.e., food clothing, housing, medical relief and education to all citizens without
distinction of race or religion, who might be temporarily or permanently incapable of earning their
livelihood due to unemployment, sickness or other reasons.
As discussed by Zarqa (1995, Section 4.3 (e)) and Siddiqi (1995, Section 2), recognition of this
responsibility goes back to the earliest times of Islam. The second Khalifa of Islam, Umar said to a non-
Muslim citizen who had paid taxes when young that he was entitled to be provided for in old age. The
first state-run hospitals and orphanages, as well as pensions for widows, the handicapped and older
people, were established in his time. These are Islamic inventions of which Muslims can justifiably be
proud. Khalifa Umar bin Abd al Aziz is reported to have wept with the worry that he was responsible
for and would have to answer to God about the hungry, the poor, the unattended sick, the prisoner in
alien lands, the very old, those with many dependents but little money, and similar people. Syed Abul
Hassan Ali Nadvi (1986) writes that the idea of collective responsibility for the needs of the entire world
is one of the gifts of Islam to the civilizations of the world.
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Provision of economic security will protect life, create goodwill and harmony in society, provide equality
of opportunity, and rectify many injustices. Economic security will also free individuals to turn to higher
spiritual and social pursuits. Note that these motives for the provision of economic security are radically
different from standard secular ones, which are based on utilitarian or Rawlsian principles. In The
Islamic state and the welfare state: similarities and differences, Kahf (1995) discusses the concept
of the welfare state as it arose in the West and distinguishes it from the superficially similar Islamic
conception.
It is an explicit Islamic injunction to provide for the poor in an honourable way. In contrast, early
poorhouses in England were designed to be shameful and degrading, so as to give people little incentive
to stay; such an approach is prohibited in Islam.
7.4 Compassion
The word Ihsan means doing good to others, by giving gifts, or helping him, or providing him with
comfort, or doing something to make him happy. This concern for welfare of others almost entirely
ignored by economists, is central to Islamic teachings:
3:134 Those who spend (freely), whether in prosperity, or in adversity; who restrain anger, and
pardon (all) men;- for Allah loves those who do good.
It is narrated in a Hadeeth by Abu Huraira R.A. that the Prophet Mohammad S.A.W. said that the heart
of a Believer is full of love and affection, and that there is no good in a man who does not love others
and others do not love him. [Musnad Ahmad, Shob ul Eeman]
Furthermore, spending on others is to be done out of the love of Allah, and not because of compulsion
or because of expectation of worldly rewards, nor even the gratitude of the recipients. This leads to a
reversal of priorities we give to others from the best of what we have, rather than the worst.
2:267 O you who have attained to faith! Spend on others out of the good things which you may
have acquired, and out of that which We bring forth for you from the earth; and choose not for
your spending the bad things which you yourselves would not accept without averting your eyes
in disdain. And know that God is self-sufficient, ever to be praised.
8. Institutions of An Islamic Society
These fundamental principles result in tremendous differences between institutions which are central
to Islamic societies and those which are central to Capitalist societies. The rise of the West and effects
36
of colonialism have been such that Muslims have accepted western institutions without questioning
them. Efforts are under way to accommodate these institutions, which are patently un-Islamic, within
the framework of Islamic law. A revolution in thought is required to bring about the radical change that
Islam represents. Some of the dramatic differences between institutional structures of an Islamic society
and current western structures are discussed below.
8.1 Ummah & Brotherhood Versus Nation-States
Islam places stress on the brotherhood of all human beings. Separation into nations and races creates
diversity which helps in recognition, and is not meant to be a source of pride:
49:13 O mankind! We created you from a single (pair) of a male and a female, and made you
into nations and tribes, that ye may know each other (not that ye may despise (each other).
Verily the most honoured of you in the sight of Allah is (he who is) the most righteous of you.
And Allah has full knowledge and is well acquainted (with all things).
This ayat was revealed after the conquest of Mecca, when the nobles of Mecca found it injurious to
their dignity that the former black slave Bilal R.A. was asked to say the Adhan after the conquest of
Mecca. Honor belongs to those who are righteous, and does not depend on geographical location or
race or language. Administrative arrangements of different types can be made for governance, but these
arrangements are not a source of identity, or of hostility and conflict among different units. See Iqbal &
Lewis (2009) An Islamic Perspective on Governance for a good discussion.
Almost all of these ideas are in direct conflict with the basis for unity and community currently in
use in the West. The West invented the idea of the Nation-State, which is now the dominant form of
community. This form is automatically assumed in the background of economic theory of international
trade, without explicit mention. In fact, the idea of organizing human beings according to European
ideas of nation-state is repugnant to Islam. The poet Iqbal has correctly said:
Among the newly minted Gods, the biggest one is the Nation
The clothing that it wears is the Coffin of Islam. -- Iqbal (free translation)
The European invention of Nation as a basis for collective action has caused a tremendous amount of
damage to humanity. Many European ideas derive from the idea that Nations are supreme. Patriotism
was invented and spread to develop pride in nationality; this was useful in fighting wars against other
nations. Wars due to frictions between nations have taken a massive death toll 55 million in World
War II and 20 million in World War I alone unprecedented in human history.
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A contributing factor has been the secular idea of the social contract as a basis for morals. Since the
social contract is between members of a nation, it follows that the nation itself, and its leaders, are
beyond morals they are the creators of morality. The tremendous amount of evil created by this
concept has been documented in many sources; for example, Glover (2001) and Bauman (2001).
Nationalism has made it impossible to make progress in protecting the world from massive
environmental damage which threatens to destroy the world. While everyone agrees on the necessity
of the Kyoto protocol, each nations puts its interests over the collective interests of humanity, leading to
conflict.
The message of Islam which puts our brotherhood as human beings above all petty claims of allegiance
is a desperate need of current times. Just as the nation was a European innovation, so the need of the
times is for a Muslim innovation which rises above nationhood and creates alternative bases for unity.
Many clues for achieving this goal can be found in our texts and in Islamic history. The burden of the
message of Islam is heavy, and it is challenge to the Muslims to find bold and imaginative new solutions
for world governance consistent with the spirit of Islam.
8.2 Waqf Versus Banks
A key question which faces all societies is: how should members spend surplus wealth that which is in
excess of their personal needs? Here Islamic societies and capitalist societies differ tremendously. The
Quran encourages us to spend excess on others, for the sake of Allah. In capitalist societies, there is an
emphasis on the accumulation of wealth. So either the excess is used for acquiring more wealth, or it is
used for luxurious and extravagant consumption, both of which are prohibited in Islam. This dramatic
difference is also reflected in the institutional structure of the societies. In Islamic history, excess wealth
was spent on creating Awqaf, as per the original directive of the Prophet S.A.W. Not only was there an
effort to spend on the poor, but there was an effort to do it cleverly, to provide maximum benefit to
the maximum number of people for the longest time in other words, the maximization of the benefits
to others. About one thirds of all the land in the Ottoman Empire was allocated to Waqf, showing the
strong effect of the command to spend on others. These Awqaf were at the heart of the fabric of social
life in Islamic societies, and carried out a tremendous range of community welfare functions. Hoexter
(2002) write as follows:
prior to the twentieth century a broad spectrum of what we now designate as public or
municipal services, e.g., welfare, education, religious services, construction and maintenance
of the water system, hospitals, etc. were set up, financed and maintained almost exclusively by
endowments, was documented in this stage. So was the fact that very large proportions of real
estate in many towns and in the rural areas were actually endowed property.
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In particular, everyone in the society could expect to be fed, clothed, housed, and educated, since that
was the collective responsibility of the society. Whereas Banks are designed to bring depositors the
earning of this world, Waqf are designed to generate earnings of the Akhirah. This difference in spirit
is the essential difference between Islamic and Western worldviews, and it translates into this worldly
difference. Just as banks compete to find the best investments in Dunya, so the Awqaf compete to find
the best investments for the Akhira.
Banks are exactly the opposite institution, which reflect the encouragement of hoarding money. They
did not arise in the west until the social stigma was removed from greed, miserliness, and hoarding as a
result of transformation to a secular society. The bad effects of this irrational pursuit of wealth for its
own sake can be documented in many different domains, of which we list just a few for a sample.
1. Extreme concentration of wealth in hand of a few individuals. The top fifteen people own more
wealth than the bottom billion. There is an explicit command in the Quran not to allow such
concentration of wealth.
2. Money flows from poor to rich. Economists do not study the tragedy of how the poorest
countries in the world have made payments of more than 500 billion dollars in interest to the
richest countries in the world, by starving their own populations. This is again in direct violation
of Quranic teachings, which state that the poor have a right in the wealth of the rich.
3. Because banks undertake financial transactions prohibited by Islamic teachings, they are prone
to crises. More than ninety such crises over the past fifty years, which led to misery of millions,
are documented in a recent IMF Study. See Krugman (2000) and Crowe et. al. (2010) for more
details.
A capitalist society is geared towards the production and accumulation of wealth. Banks play a key role
in promoting and fulfilling these functions. Charities and Foundations, analogs of the Awqaf, exist, but
play a minor role in capitalist societies. An Islamic society is focused on purchasing the goods of the
Akhira by selling our lives and wealth. Waqf plays a key role in this function. The relative importance of
the financial institutions would be reversed in an Islamic society. Banks would play a minor role, while
Awqaf would be far more central and important financial institutions.
8.3 Service Versus Profit
The dictum of Milton Friedman was the profits is the only business of business. He was strongly
opposed to the idea that corporations have social responsibility. This mindless pursuit of profits for its
own sake has led to disasters on many fronts, as the following quote from Harvard Professor Zuboff
(2009) indicates:
I spent a quarter-century as a professor at the Harvard Business School, including 15 years
teaching in the MBA program. I have come to believe that much of what my colleagues and I
39
taught has caused real suffering, suppressed wealth creation, destabilized the world economy, and
accelerated the demise of the 20th century capitalism in which the U.S. played the leading role.
The extreme unpopularity of the corporate quest for profits has led to the re-emergence of the idea of
Corporate Social Responsibility. Unfortunately, this is seen is a marketing tool to improve image. As a
result, it is easily documented that charity worth $100 is done and $1000 is spent in advertising it.
As already discussed, Islam prohibits earning money for its own sake. Earning money and trade is
permissible and encouraged for the sake of serving humanity
2
. When done in this way, earning earns the
blessings of Allah and the honest traders will be in the company of the pious on the day of judgment. On
the other hand, the pure profit seekers are accursed:
The provider is blessed, and the withholder is accursed Ibne Majah 2238
This Hadeeth means that those who trade with the intention of serving people by providing for their
needs are blessed by Allah, while those who withhold essential goods with the intention of profiting by
providing them at a high price are accursed.
The change in orientation of business is reflected in the institutions of the society. The natural way of
doing business in a cooperative and service oriented Islamic society is the craft-guild. These guilds were
widespread throughout the Islamic world. Their devotion to service, and organization as a brotherhood
served many Islamic ideals, and provided meaning to their work. The guilds were responsible for
providing service to the society, and could be called to account for failure to provide it to all. They
were responsible for quality control, internal policing, maintaining standards of service and other
aspects of professional conduct. The guilds of Al-Andalus were famous for the quality of their products,
innovations, and efficiency in production; see Vadillo (n.d).
If the spirit of service is replaced by the spirit of profit making then guilds become a menace to society.
A guild of doctors can make tremendous profits by threatening to withhold vital services. In the jungle
where everyone is out for personal profits at the cost of society, competition is best competition will
lead to lower prices. Islam envisions the creation of a society of humans concerned for the welfare of
each other. It does not allow one person to undercut the offer of his brother for the sake of personal
profits. The best modes of doing business differ radically in a cooperative society of civilized human
beings and in a jungle of cut-throat competition. Of course the critical question is: how can one bring
people out of the jungle into civilization? This is the question to which our Prophet S.A.W. demonstrated
the answer, by transforming illiterate semi-savage Arabs to civilized leaders of the world. It is up to us
Muslims to replicate this achievement today.
2
Service falls into several categories. First, one must earn for self-sufficiency, so as not to be a burden on society.
Second you must provide for your family, as required by Islam. Third, you can earn so as to provide for neighbors
and extended family. Fourthly, you can try to excel in providing more broadly to society as a whole, via Awqaf and
other means.
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8.4 Communities versus Individuals
Islam places a great deal of stress on communities, and their mutual responsibilities.
4:36 AND WORSHIP God [alone], and do not ascribe divinity, in any way, to aught beside Him.
[46] And do good unto your parents, and near of kin, and unto orphans, and the needy, and the
neighbour from among your own people, and the neighbour who is a stranger, and the friend by
your side, and the wayfarer, and those whom you rightfully possess. Verily, God does not love
any of those who, full of self-conceit, act in a boastful manner;
In particular, the neighborhood is a natural community which is emphasized in Islamic teachings. In a
Sahih Hadeeth from Bukhari and Muslim, the Prophet S.A.W. is reported to have said that Jibraeel A.S.
kept emphasizing the rights of the neighbors until I thought that the neighbors would also be given a
right of inheritance.
Conventional economic analysis takes individuals as the unit of analysis. Collective action is the province
of the government. Intermediate units like communities do not exist. In fact, communities can solve
certain problems in ways that neither governments nor markets can.
8.4.1 Local Public Goods
Communities have access to inside information about benefits and costs, ability and willingness to
pay, skills, talents and capabilities of the members. Both markets and governments lack access to
this localized information. The Orangi Pilot Project succeeded in laying down sewer lines in a poor
neighbourhood at minimal cost because of community involvement; see Khan (1998) for details. The
community knew which members could afford to pay, and could enforce an equitable distribution of
the burden. It could also exploit knowledge of relevant engineering skills available with members of the
community.
Islam has a natural basis on which a community can be built. The local masjid is (supposed to be)
attended by all male members five times a day. It would be expected that this would build community.
Local problems could be discussed and solved collectively in this way. Unfortunately, like many other
Islamic practices, the form is still present, but the spirit has faded away:
The ritual of Adhan remains, but the spirit of Bilal is gone Iqbal (free translation)
8.4.2 Takaful Versus Insurance
Recent research shows that cooperation is built into the nature of human beings. Children are observed
to help, share, provide physical comfort, provide verbal sympathy, protect, and defend victims in
distress. according to Zahn-Waxler (1992). Childhood training can develop and foster social traits or
reduce and suppress them. This is exactly in accordance with a Hadeeth that all children are born on the
41
nature of Islam, but the parents can train them away from this.
Islamic societies have not had any equivalent of the western institution of insurance. Furthermore,
Islamic scholars have ruled that this institution is incompatible with Islamic laws on many grounds. The
Western system of insurance based on making profits from pooling risks, where insurance companies
seek to profit from the distress of others, is alien to the spirit of Islam. There are many problems which
arise in this system, due to the fact that each party seeks to benefit at expense of others. Adverse
selection occurs when only the high risk parties buy insurance. Moral hazard means that someone
may deliberately take risks because he is insured against them. This is what led to the global financial
crisis recently, when banks gave out highly risky mortgages and obtained insurance against these risks.
Islamic scholars argue that insurance is like gambling, and the proof came when the biggest insurer in
the world AIG collapsed. To allow this collapse would have destroyed the whole financial system, so
the US Government rescued the company via a $187 billion bailout. Extreme injustice resulted from
this system, as the sufferers who lost homes due to financial chicaneries received no relief, while the
perpetrators of financial injustice were rewarded.
The Islamic alternative of Takaful is based on a radically different spirit, which is that of cooperation,
mutual assistance, and social responsibility for the needy. We do not seek to make profit from the
distress of others; rather we seek to help them in their time of need. Several methods of such self-help
schemes are possible, and different methods are suitable for different types of insurance contracts.
Some schemes have been introduced in the name of Takaful, but most are imitations of western style
insurance contracts within an Islamic form, and none reflect the true Islamic spirit. As in many other
dimensions, radical social innovations are necessary to bring the Islamic models into existence.
At the most basic level, communities provide for income smoothing in way that markets cannot.
Anthropologists have observed that there is little or no hunger in subsistence economies. One of the
greatest problems faced by the poor is variability in the income, or accidents and illnesses. Some days
they have surplus, while other days they go hungry. Overall, the community as a whole does not face
the same level of variability of income as individuals. If the surplus is shared, all will eat. This is the
Islamic principle, which says that one is not a believer if he eats his full when his neighbour is hungry.
Economists believe the humans are selfish and care only about their own consumption. Their theories
study societies of such people, and try to find best policies to use in the jungle. Islam teaches us
that we can choose to shape the societies we live it. We can teach our children to respect elders,
be kind, sympathetic, generous and cooperative. Or we can train them to be greedy, acquisitive,
and take pleasure in having more than others. The Prophet S.A.W. showed us that it is possible to
transform society from one kind to the other. His message transformed warring and feuding tribes
into a community which felt for each other to the extent that they would feed others while remaining
themselves hungry. It is up to us to replicate his achievement.
8.4.3 Extended Versus Atomic Families
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The most fundamental unit of society is the family. Children learn from their families and secondarily
from their schools. If families break down, then the entire society will collapse, because the children
will not receive the required training. If all families provide good training to their children, the entire
society will be shaped by this. This was the secret of the rapid rise of Islam. The Prophet S.A.W. created
a society in which all the children received training in moral excellence.
Families are built on commitment and sacrifice. Each member has duties and responsibilities, which
are clearly delineated in Islamic rules and regulations. The children must respect and obey, while
the parents must provide love, affection and equitable treatment to children. Similarly the duties of
husbands and wives towards each other are spelled out in detail. As the hold of religion weakened in
the west, the philosophy of worship of the Nafs was promoted with great vigor, and this trend continues
to this day. This eventually led to the breakdown of the family. At the present time, more than 50% of
births to women under 30 are outside of wedlock in the West. This has had grave social consequences. A
recent report on Fractured Families in Britain states that:
This Report paints a worrying picture of family breakdown in the UK.We now have one of the highest divorce rates in
the Western world and the fabric of family life has been stripped away in the past thirty years. This study also shows
more clearly than ever the destructive effects of family breakdown upon millions of children, as well as the links
between family breakdown and addictions, educational failure and serious personal debt.
Economists pay little or no attention to the family in their economic theories. In fact, Islamic teachings
recognize the structure of the family is crucial to the structure of the society. Unlike the Catholics
who have no provisions for divorce, Islam is realistic enough to allow it, while ruling that it is the least
favorite of the permissible acts. Similarly, it is the greatest sin to separate a man and his wife. Creating a
strong family is the secret to creating a strong society.
8.5 Goals of Education
Muslim innovations in the field of education are unparalleled, and continue to influence the world.
Syed Abul Hasan Ali Nadvi (1986) has called them a gift of Islam to all mankind. The concept of a
university, as a place where scholars would acquire higher learning without being troubled by worldly
pursuits, was invented by Muslims. Europeans acquired such institutions by diffusion through Islamic
Spain. Since every Muslim child is required to learn the Quran, mass education came into existence in
Islamic societies from an early stage. Writing about the culture of learning which arose in early Islam,
as evidenced by libraries, a variety of educational institutions, and many schools of thought of Islamic
law, etc., Kazmi (2005) states that, for an early Muslim to be a Muslim and not be interested in learning
would [have been] a contradiction in terms. In contrast, education was considered a prerogative of the
43
elites in Europe, and was not considered relevant or useful for the masses. There is historical evidence
that the British instituted public education in England after learning about the educational system in
India which provided education freely for all. For example, Dalrymple (2006, p 95) writes about the early
period of British India that He [the Muslim man] who holds an office worth twenty rupees a month
commonly gives his sons an education equal to that of a prime minister. After seven years of study,
the young Muhammadan [is nearly the equal of] a young man raw from Oxford.
Because free provision of education to all was taken as a social responsibility by Muslims, methods to
fund such education were found. Principal among these was the Waqf, or endowment, which provided
the financial backbone of the system. These Waqf were seized or destroyed in the colonial period, which
led to collapse of the Indian educational system. Because education was considered a religious duty, and
Muslims are not permitted to charge money for performance of religious duties, in Islamic civilizations,
education was generally available to the rich and poor, as well as women and minorities. This provided
for equal opportunities for all in a way that has rarely been matched. Shalaby (1954) gives a history of
educational methods, syllabi, institutions, libraries, the inclusion of women, and other evidence of the
prevalence of education in the first 600 years of Islamic civilization. Makdisi (1990) details the rise of
institutions of higher education in Islamic civilization, and Goody (2007) documents both their imitation
in Europe, and the suppression of this information in historical accounts.
Even more important than these institutional features is the concept of an education, and the objectives
of the educational system. These differ drastically in the East and West. The first lines of the Quran
revealed to the Prophet state Read, in the name of thy Lord. Learning is from the cradle to the
grave, according to the Prophet. The angels were told to prostrate themselves before Adam after
he displayed knowledge that they did not possess. An education is a means of development in all
dimensions: spiritual, social, and human. It is emphatically not a means to earn money or acquire job
skills. The Islamic institutions have collapsed and been forgotten as the rise of western educational
systems has eclipsed alternative conceptions of education. As many critics have come to realize, the
educations goal of turning humans into productive cogs in a machine suppresses creativity and many
essential human features. Gatto (2002) has written at length on how a successful mass production
economy a well managed mass (of workers):
level, anxious, spiritless families, godless and conforming; people who believe that the
difference between Coke and Pepsi is matter worth arguing about. The American economy
depends on schooling us that status is purchased and others run our lives. We learn there
that sources of joy and accomplishment are external, that the contentment comes with the
possessions, seldom from within.
Higher education, just like mass education at lower levels, is not designed to produce character
development. Julie Reuben (1996) has documented how the efforts to build character were gradually
abandoned in western universities in the twentieth century. This has led to a situation where brilliant
scientists design ovens to be used for burning people in mass (in Nazi Germany), and weapons which
can cause deaths of millions, or fry innocents in heat. Displaying the moral blindness created by this
44
educational system, Oppenheimers testimony about the effects of the atom bomb before Congress first
describes the spectacular light, fire and smoke show that would result, and then turned to the deadly
slaughter of all within effective radius (see Valiunas, 2006).
Unlike these scientists who deny responsibility, and argue that it lies on the shoulders of politicians,
Islam teaches us that all participants in an act are responsible for it. It does not allow us to teach
that which can harm others, without teaching the morality, ethics, and social responsibility that goes
with power. It is lack of availability of such an education in the west that has led to a situation where
destroying a country, killing a million innocents and destroying the lives and livelihoods of forty million
others for the sake of oil is considered as acceptable politics.
9 Concluding Remarks
Economists have completely mistaken the nature of human beings, and the nature of economic
problems that we face. Unfortunately, modern Islamic economists have also been mesmerized by the
sophisticated mathematical models of western economists, which has resulted in a crisis discussed
in Zaman (2012b). In fact, the teachings of Islam are dramatically opposed to those of conventional
economics, and suffice to provide us solutions for today.
The Prophet Mohammed S.A.W. said that wealth and poverty are conditions of the heart. We are rich
if we learn to be content with what we have, while a millionaire who thirsts and struggles and strives
for even more wealth is poor. The real battleground is the war between good and evil which is waged
within the hearts of all human beings on a daily basis. The task of the Prophet, and his Ummah after
him, was to call towards the good and to prohibit the evil. If we succeed in our invitation towards
the good, more and more humans will succeed in winning their internal battles. Repeated success
in overcoming the base desires of our Nafs builds character and spiritual strength. This allows us the
achieve excellence in conduct which is the purpose of our creation:
67:2 Who hath created life and death that He may try you, which of you is best in conduct; and
He is the Mighty, Forgiving,
The burden of the teachings of Islam is heavy. They call for excellence which is beyond the limits of what
is conceivable in the West. We point out three goals that are worth striving for.
Sacrificing for Others: The origins of cooperative behavior continue to puzzle economists, who seek to
explain it on the basis of long-run self-interest. However, Allah Taala has praised those who feed others
while being themselves needy. He has praised those who sell their lives to buy the pleasure of Allah,
and those who feed the hungry for the sake of His love. It is a testimonial to the power of the teachings
of Islam that the companions of the Prophet S.A.W. achieved this inner spiritual transformation. They
45
went from a semi-barbaric culture to models of excellence in conduct for all times to follow. Today
the challenge for us is to replicate this inner transformation, which is the key to solving all the external
problems that we face.
Justice: The standards of justice required of human beings by Islam are extremely high. Muslims are
required to bear witness, even if it is against their own self-interest:
Q4:135 O ye who believe! stand out firmly for justice, as witnesses to Allah, even
as against yourselves, or your parents, or your kin, and whether it be (against) rich
or poor: for Allah can best protect both. Follow not the lusts (of your hearts), lest
ye swerve, and if ye distort (justice) or decline to do justice, verily Allah is well-
acquainted with all that ye do.
This standard is considered beyond human reach in US law, and the Fifth Amendment allows people to
abstain from bearing witness against themselves. The justice called for includes economic justice. We
are not allowed to eat our fill while our neighbors are hungry. This understanding is crucial to solving
economic problems of today.
Purity of Intention: An essential requirement for the acceptability of all our deeds is an exclusive focus
on winning the pleasure of Allah. Anything done for praise, or for worldly rewards, or even for earning
gratitude of others, is not acceptable. Whereas incentive theories in the west place stress on the
external structure of rewards and punishments, Islam places stress on purifying the heart:
87:14 But those will prosper who purify themselves,
The Challenge: The challenge that we face as an Ummah today is spelled out clearly in the Quran:
22:78 And strive in His cause as ye ought to strive, (with sincerity and under discipline). He
has chosen you, and has imposed no difficulties on you in religion; it is the cult of your father
Abraham. It is He Who has named you Muslims, both before and in this (Revelation); that the
Messenger may be a witness for you, and ye be witnesses for mankind! So establish regular
Prayer, give regular Charity, and hold fast to Allah. He is your Protector - the Best to protect and
the Best to help!
It is ours to struggle for the establishment of the Deen, with the maximum possible effort. We have to
bear witness that it is possible to fulfill the commands of Allah, and to achieve the excellence in conduct
which the Quran exhorts us to. We were sent to the Earth for this struggle to establish justice for the
sake of the pleasure of Allah. Fourteen centuries ago, the teachings of Islam changed the hearts of
men, who then went on to change course of history. These teachings are just as powerful today as they
were 1400 years ago. The evil deeds of man have led humanity into a morass where disasters loom in
all dimensions of human existence. The world awaits those who can implement the excellence of the
conduct of the Pophet in their lives and teach it to others:
46
3:31 Say, (O Muhammad, to mankind): If ye love Allah, follow me; Allah will love you and forgive
you your sins. Allah is Forgiving, Merciful.
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