ISLAMIC

ECONOMI
C SYSTEM

Current Debate Among Muslims

What was there in the message of Islam which changed the course of human history?

Does this message have the same power, relevance and importance today as it did
fourteen centuries ago?

As we have seen, non-Muslim historians acknowledge the power of the message of

Islam, in its historical context. However, they believe that this power was available in
simpler times, and is no longer relevant to the complex modern world. The simple
message of Islam no longer has the power to radically transform human lives and
living experience, and to change the course of history.

Sadly and unfortunately most Muslims have also come to agree with this western
analysis. They believe that progress of Muslims today depends on mastering
Chemistry, Biology, and Physics, and on acquiring democratic governance,
industrializing, and generally imitating developments in Europe over the past three
centuries or so.

Scarcity in Islamic & Western View

Scarcity is at the heart of economic theory. If there is an

abundance of all material wealth, then there would be no need to
discuss economic issues.

After agreement on this fundamental issue, Islamic economics and

conventional Western economics part ways.

The Western analysis of the causes of scarcity, how to handle the

problem, and the consequences of solving the problem are radically
different from Islamic views. The purpose of this note is to discuss
these differences and argue that the Islamic views are superior, and
in accordance with observations.

Selfishness & Greed or Cooperation?

Economic textbooks teach us that men behave purely selfishly.

Islam teaches us that men have both the tendency towards evil, and the
capability of being good.

When we look at the world, we observe very large amounts of charitable,

compassionate and self-sacrificing behavior, which violates the teachings of
economics theory. Because of the wrong predictions of economic theory,
economists are almost always surprised by the results of the ultimatum game,
which show that human being often choose to take a loss rather than be
treated unjustly (Camerer 2003).

Thus, empirical evidence strongly favors Islamic views over those taught in
current conventional economic texts.

Comparison with Neoclassical Views

Economics textbook agree with the idea of men being motived by the
love of worldly possessions expressed in verse (Q3:14).

However, neoclassical textbooks do not mention the possibility of

(Q39:9) that men may be generous enough to give to others even
while being poor themselves

Money donated to charities forms a significant component of the GDP

in most countries, and charitable behavior is an important element of
the social safety network for the poor.

The Quran places great emphasis on spending for the needy, but there
are no chapters on charity in neoclassical textbooks.

Comparison with Neoclassical View

Because of their single minded focus on

selfishness, some economists have even
attempted to explain altruism as emerging from
selfish motives (if we help others, they will help
us in times of our need).

The Needs & Wants Distinction

Islam encourages fulfillment of needs & discourages fulfillment of idle

desires.

Conventional economics does not make such a distinction

The Islamic view matches observed behavior and is essential for sustainable
development.

The luxurious lifestyles currently being pursued by the rich are causing
tremendous amounts of environmental damage and can neither be sustained
into the future, nor can they be shared with the masses.

Thus Islamic views offer greater wisdom than is contained in current

conventional economic textbooks.

Islamic Views on Needs & Desires

O Children of Adam! Take your adornment (by wearing your clean clothes),
while prayingand going round (the Tawaf of ) the Ka'bah, and eat and drink but
waste not by extravagance, certainly He (Allah) likes not those who waste by
extravagance).
( Surah Al-Araf : 31)

Human needs are limited.

Wants or desires are unlimited.

"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.
(Al-Bukhari: Volume 8, Book 76, Number 447)

Islamic Views on Needs & Desires

The Quran strongly discourages pursuit of idle desires

( 23)furqan

But as for him who feared standing before his Lord, and
restrained himself from impure evil desires, and lusts.
Verily, Paradise will be his abode.
(Surah An-Naaziyat: 40-41)

Neoclassical Theory Rejects

Needs & Wants Distinction

Complex historical processes starting with the corruption of the Catholic

Church, subsequent emergence of Protestant sects, and their violent fights
with each other, led eventually to the rejection of faith in Europe.

In accordance with the Hadeeth that the life of this world is a prison for
believers but heaven for the unbelievers, one of the high priorities of secular
thought has been to build heaven on earth, by pursuing wealth and desires
as much as possible.

There is a tension between pursuit of selfish desires and social harmony,

and resolving this was one of the major issues tackled by secular political
philosophy in Europe

Neoclassical Theory Rejects

Needs & Wants Distinction

While religious thought condemns selfish behavior, a secular world

demanded a philosophy to justify freedom to pursue self-interest so as to
be able to enjoy a heaven on earth (which would replace the heaven in
afterlife promised by religion.

The invisible hand was the first such philosophy, which suggested that
selfish behavior would lead to socially optimal outcomes. Subsequent
developments have also been motivated by the need and desire to justify
the maximum amount of freedom for all economic agents.

As Galbraith recognized: The modern conservative is engaged in one of

man's oldest exercises in moral philosophy; that is, the search for a
superior moral justification for selfishness.

Neoclassical Theory Rejects

Needs & Wants Distinction

In economic, political, and social domains, secular Western thought has been
driven by the idea of giving as much freedom to individuals as possible.

Within economic theory, justification of free markets has been a central concern.
The Chicago school and Austrian economists represent a polar extreme in
defending free markets even in the presence of monopolies, externalities and other
market imperfections.

The Great Depression of 1929 led nearly everyone to the clear recognition that free
markets can lead to catastrophic performance and misery for millions, and made
socialist and communist solutions to economic problems appear attractive to many.

Keynes rescued the free market by providing a theory which suggested that free
markets would function well as long as the government ensured full employment
by fiscal or monetary policy.

Causes of Scarcity

One Western diagnosis for the reasons for scarcity is that there are
too many people. This was initiated by Malthus, and the idea
continues to guide policy to this day.

The Quran explicitly denies this idea, and states that God sends
sustenance for all his creation.

Misguided Western policies based on the idea of surplus people

have caused tremendous damage, as well as degrading and devaluing
human beings.

Islamic views accord with the empirical data which shows that food
supplies have kept up with population, despite tremendous increases
in population.

Islamic View: God is Bountiful

The Quran tells us clearly that we need not fear that population will
exceed the food supplies:

And kill not your children for fear of poverty. We provide for them
and for you. Surely, the killing of them is a great sin.
(Surah Al-Isra :31)

To each these as well as those We bestow from the Bounties of your

Lord. And the Bounties of your Lord can never be forbidden.
(Surah Al-Isra: 20)

( 73)

Islamic View: God is Bountiful

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( 29)

Islamic scholars have concluded from these, and other verses, that there is
no scarcity at the level of needs, contrary to the views of Malthus and his
followers.

This is also in accordance with the data, which shows that the food to
population ratio has remained remarkable stable, despite tremendous
increases in population.

Men informed by the Quranic vision would not have made the policy
mistakes documented in the previous section, which continue to adversely
affect the world today.

Islamic View: God is Bountiful

And no (moving) living creature is there on earth but its provision is due
from Allah. And He knows its dwelling place and its deposit (in the uterous,
grave, etc.). all is in a Clear Book (Al-Lauh Al-Mahfuz - the Book of Decrees
with Allah).
(Surah Hud: 6)
The Quran pinpoints the nature of the problem, and gives the exact solution
required:

The problems of hunger, famine, and deprivation are created because the
wealthy do not acknowledge the right of those who are needy for a share of this
wealth.

The Quran narrates the story of the owners of a Garden who sought to avoid
sharing the fruits of the harvest with the poor, and how their Garden was
destroyed because of this

Solving the Problem of Scarcity

The Westernview on how to solve the problem of scarcity is by the

accumulation of wealth. As discussed below, Keynes thought that
encouraging selfishness and greed in the society would lead to rapid
accumulation of wealth. With enough wealth, all social, political, and
even moral problem of man would be solved. This has not turned out
to be the case empirically.

The Islamicview is that there is no scarcity at the level of needs.

There are enough resources for everybody, but problems arise
because the wealthy do not acknowledge the right of the poor to a
share of their wealth. The solution is to encouragecompassion,
sharing,andtoenjointhegood.

Western Solution to Scarcity

As belief in religion and afterlife diminished in the West, it was natural

for them to turn to the pursuit of the pleasures of this world. Lack of
sufficient material resources was the biggest obstacle to this pursuit, and
scarcity became the central problem for man.

One of the most clear sighted statements of Western concepts in this

direction has been given by Keynes. He thought it was temporarily
necessary to pretend that fair is foul, and foul is fair for foul is useful,
and fair is not.

By pursuing wealth using foul means of avarice and greed, mankind

should free itself from the economic problem, so as to be free to turn to
higher pursuits

Islam Denies the Validity of the Western

Solution

The Quran denies that accumulation of wealth will solve the

problems of man.

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)55( ) (
( 56)

Who has gathered wealth and counted it. He thinks that his
wealth will make him last forever!
(Surah Al-Humaza :2 -3)

Islamic Solution to Scarcity Needs

Islam has a two-pronged approach to the problem of scarcity. Since

there is no scarcity at the level of needs, the only thing necessary is to
get those who have surplus wealth to share it with those who are in
need. The Quran condemns those who do not urge the feeding of the
poor.

And urged not on the feeding of Al-Miskin (the poor)

(Surah Al-Haqqa: 34)

This verse tells us that not only must we feed the poor ourselves, we
should also urge it on others. In other words, we are required to
campaign against poverty as Muslims. If we carry out our
responsibility, which is part of the general command to this Ummah of
spreading the good and prohibiting the evil, this will solve the problem
of scarcity at the level of needs.

Compassion

The development of feeling for others is stressed in Islam.

The Quran writes about the Prophet s.a.w. that heavily weighs
upon him (the thought) that you might suffer, full of compassion
and mercy towards the believers.

In other verses, the Prophet is described as being Mercy for all

mankind. The Quran praises those who feed others while being
themselves hungry:

Infaq

spending money for the sake of Allah.

primary purpose of acquisition of wealth.

This is the Book (the Qur'an), whereof there is no doubt, a guidance to those who
are Al-Muttaqun [the pious and righteous persons who fear Allah much (abstain
from all kinds of sins and evil deeds which He has forbidden) and love Allah
much (perform all kinds of good deeds which He has ordained)].

3.Who believe in the Ghaiband perform As-Salat (Iqamat-as-Salat),and spend

out of what we have provided for them [i.e. give Zakat , spend on themselves,
their parents, their children, their wives, etc., and also give charity to the poor and
also in Allah's Cause - Jihad, etc.].

Avoidance of Waste

Spending more than necessary (Israf) is wasteful of resources, and also deprives
the needy.

According to a 1997 study by US Department of Agriculture's Economic Research

Service (ERS) entitled "Estimating and Addressing America's Food Losses:

About 96 billion pounds of food, or more than a quarter of the 356 billion pounds of
edible food available for human consumption in the United States, was lost to
human use by food retailers, consumers, and foodservice establishments in 1995.
Roughly 49 million people could have been fed by these resources.

In presence of such statistics, showing wastage and resulting loss of efficiency,

how can claims of market efficiency that is market structures lead to efficient
outcomes -- be taken seriously?

Prohibition of Envy

Islam prohibits us to envy others, and teaches us strategies to

prevent it.

And wish not for the things in which Allah has made some of
you to excel others. For men there is reward for what they
have earned, (and likewise) for women there is reward for
what they have earned, and ask Allah of His Bounty. Surely,
Allah is Ever All-Knower of everything.
(Surah Al-Nisa:32)

Avoidance of Tabzeer

: While Israf is spending more than what is needed, Tabzeer is to spend on what is
entirely unnecessary, illegal or Haram.

If consumers were to spend only on their needs, there would be a substantial fall
in demand for consumer goods, and substantial increase in savings. This would
lead to substantial funds being available for investment and welfare projects and
corresponding increases in growth and welfare of the poor.

However, capitalist societies have mechanisms to prevent this reallocation of

resources to useful purposes.

Marketing is used to create feeling of need in consumers for entirely unnecessary

products (like Pet Stones, expensive Barbie Dolls and other fad items).
Conspicuous consumption, first analyzed by Veblen, is to buy things so as to be
the envy of the neighbors, or to establish status, both of which are Haram in Islam.

Avoidance of Tabzeer

And give to the kindred his due and to the Miskin (poor) and to the wayfarer. But
spend not wastefully (your wealth) in the manner of a spendthrift . [Tafsir. AtTabari, Vol. 10, Page 158 (Verse 9: 60)]. Verily, spendthrifts are brothers of the
devils, and the Devil is ever ungrateful to his Lord.
(Surah Al-Isra :26-27)

While the wrong Western diagnosis that lack of wealth is the source of scarcity
leads them to pursue the wrong remedies

The Quran offers us the correct solution to the problem. Instead of striving for
more wealth, the Quran teaches us to restrictouridledesires, strive to lead
simple lifestyles, and to spend on others less fortunate than us. It also teaches us to
be content with what we have, and not envy those who have more material wealth.

We should also have compassion for others, and not seek to make them envious of
our consumption, if we have more.