Islamic Economics: History, Development and as an Academic Discipline

Islamic Economics

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Islamic economics (Arabic: الاقتصاد الإسلامي‎) is a term used to refer to Islamic commercial jurisprudence (Arabic: فقه المعاملات‎, fiqh al-mu'āmalāt).

Islamic commercial jurisprudence entails the rules of transacting finance or other economic activity in a Shari'a compliant manner,^[1] i.e., a manner conforming to Islamic scripture(Quran and Sunnah). Islamic jurisprudence (fiqh) has traditionally dealt with determining what is required, prohibited, encouraged, discouraged, or just permissible,^[2] according to the revealed word of God (Quran) and the religious practices established by Muhammad(sunnah). This applied to issues like property, money, employment, taxes, along with everything else. The social science of economics,^[2] on the other hand, works to describe, analyze and understand production, distribution, and consumption of goods and services,^[3]and studied how to best achieve policy goals, such as full employment, price stability, economic equity and productivity growth.^[4]

In the mid-twentieth century, campaigns began promoting the idea of specifically Islamic patterns of economic thought and behavior.^[5] By the 1970s, "Islamic economics" was introduced as an academic discipline in a number of institutions of higher learning throughout the Muslim world and in the West.^[1] The central features of an Islamic economy are often summarized as (1) the "behavioral norms and moral foundations" derived from the Quran and Sunnah; (2) collection of zakat and other Islamic taxes, (3) prohibition of interest(riba) charged on loans.^[6][7][8][9]

Advocates of Islamic economics generally describe it as neither socialist nor capitalist, but as a "third way", an ideal mean with none of the drawbacks of the other two systems.^[10][11][12] Among the claims made for an Islamic economic system by Islamic activists and revivalists are that the gap between the rich and the poor will be reduced and prosperity enhanced^[13][14] by such means as the discouraging of the hoarding of wealth,^[15][16] taxing wealth (through zakat) but not trade, exposing lenders to risk through Profit sharing and venture capital,^[17][18][19] discouraging of hoarding of food for speculation,^[20][21][22] and other activities that Islam regards as sinful such as unlawful confiscation of land.^[23][24] Critics (Timur Kuran, Feisal Khan) have described it as primarily a "vehicle for asserting the primacy of Islam", with economic reform being only a secondary motive.^[25][26]

Definitions and descriptions

"that branch of knowledge which helps to realize human well-being through allocation and distribution of scarce resources that is in conformity with Islamic teachings without unduly curbing individual freedom or creating continued macroeconomic and ecological imbalances." (Umar Chapra)^[28] (similarly, the "study of human behavior with regard to acquiring and using resources for the satisfaction of necessities, needs, and other desires," but "based on the assumptions" of the Islamic "outlook on life and humanity". (Monzer Kahf))^[29]According to Hasan Raza, after more than six decades of its formal/ informal existence, a consensus definition of Islamic economics has not yet emerged.^[27] Some definitions that have been offered include:

• "the study of an ... economy which abides by the rules of the Shariah", i.e. an Islamic economy. (A definition used by some, according to M. Anas Zarqa)^[30][31]
• a discipline that goes beyond the practice of Western economics—which seeks to make "positive analysis" and give an objective description of what is—to provide normative policy prescriptions of what ought to be and can be.^[32] And which seeks to achieve a "transformation of human beings from followers of base desires to people concerned with achieving higher goals".^[33] (Feisal Khan^[32] describing the ideas of M.R. Zaman,^[33]and also M.U. Chapra,^[34] and M.N. Khan and M.I. Bhatti.)^[35]
• "a discipline that is guided by the Shariah and studies all human societies" (A definition used by others, according to M. Anas Zarqa)^[30][31]
• "restatements of Islamic economic teachings", using "modern economic jargon". (What most of the knowledge content in the body of Islamic economics amounts to according to economist Muhammad Akram Khan)^[36]
• an ideology
  • "a revolutionary ideology" to change "the corrupt reality ... into a pure one", and "not a science of political economy" or "an objective analysis of existing reality". (Ayatollah Murtaza Mutahhari)^[37]
  • an "ideological construct" developed by 20th century Islamists (by Abul A'la Maududi, Ayatollah Muhammad Baqir al-Sadr, Abolhassan Banisadr, etc.) taking basic prescriptions from sharia (Islamic law), and systematizing and conceptualizing them "to construct a coherent and functional ensemble offering a middle ground between the two systems of the twentieth century, Marxism and capitalism." (Social scientist Olivier Roy)^[38]
• Zaman(2015) ^[39] argues that confusion regarding appropriate definition of Islamic Economics have arose because of attempts to mix Western Economics concepts with Islamic ideals, when the two are diametrically opposed to each other in many dimensions. He proposes a definition based on purely Islamic sources: "Islamic Economics is the EFFORT/STRUGGLE to implement the orders of Allah pertaining to economic affairs in our individual lives (Micro), in our communities (Meso), and at the level of Ummah (Macro)."

Fiqh and Islamic economics

Fiqh (religious law) has developed several traditional concepts having to do with economics. These included:

• Zakat—the "charitable taxing of certain assets, such as currency, gold, or harvest, with an eye to allocating these taxes to eight expenditures that are also explicitly defined in the Quran, such as aid to those in need."
• Gharar—"uncertainty". The presence of any element of excessive uncertainty, in a contract is prohibited.
• Riba—"referred to as usury (modern Islamic economists reached consensus that Riba is any kind of interest, rather than just usury)"^[40]

Another source lists "general rules" include prohibition of Riba, Gharar, and also

• Qimar (gambling)^[41] and
• the encouragement of Taa’won (mutual cooperation),^[41]
• "the overriding doctrine of fairness in commercial dealings is established."^[41]

These concepts, like others in Islamic law, came from study of the Quran and ahadith—or as one observer put it, were

constructed on the basis of isolated prescriptions, anecdotes, examples, words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method."^[42]

In addition to Quran and ahadith sometimes other sources such as al-urf (custom), or al-ijma (consensus of the jurists) are employed,^[43]to create laws that determine whether actions were forbidden, discouraged, allowed, encouraged and obligatory for Muslims. The different school of fiqh (madhhab) vary slightly in their rulings.

Works of fiqh are typically divided into different "books" such as a Book of Iman, of Salah, Zakat, Taqwa, Hajj, but not `economics` or `economy`.^[44] Some brief works might contain almost nothing related to matters of property, sales, finance ^{[Note 1]} Others do not gather questions on economic issues in one heading, the case in Tawzih al-masa'il, a work of fatawa by Ayatollah Ruhollah Khomeini, who although a pioneer of political Islam approached the subject of economy

"as the classical ulamas do ... the chapter on selling and buying (Kharid o forush) comes after the one on pilgrimage and present economic questions as individual acts open to moral analysis: `To lend [without interest, on a note from the lender] is among the good works that are particularly recommended in the verses of the Quran and in the Traditions.`"^[44][46]

Other works divided the subjects of fiqh into four "quarters":^[47] typically worship (al-`Ibadat), marriage and family law (al-Munakahat), criminal law (Jinayat), commercial transaction law (Mu'amalat).<sup>[48]</sup> At least one author (M. Kahf) writes that Mu'amalat is "closely related" to Islamic Economics.<sup>[49]</sup> (However even with the "quarters" division of fiqh topics mu'amalat would not include inheritance or wedding dower (mahr) (which at least often comes under marriage and family law),<sup>[50][51]</sup> or calculation of alms (zakat, which comes under al-`Ibadat)).

A number of scholars (Olivier Roy, Timur Kuran, Omar Norman) have noted the recentness of reflecting on economic issues in the Islamic world,^[5][44][52] and the difference between economics the social science based on data, and Islamic jurisprudence based on revealed truth.

Salman Ahmed Shaikh and Monzer Kahf insist on a clear distinction between the roles of Fiqh and Islamic Economics, Shaikh saying

to be meritorious as a separate field of inquiry, Islamic economics cannot confine itself just to explaining and deducing laws in economic matters based on core principles. Since this function is already performed by the discipline of Islamic jurisprudence ...^[53]

M. Kahf writes that mu'amalat and Islamic economics "often intermingle",^[54] mu'amalat "sets terms and conditions of conduct for economic and financial relationships in the Islamic economy" and provides the "grounds on which new instruments" of Islamic financing are developed,^[49] but that the "nature of Fiqh imposes a concern about individual transactions and their minute legalistic characteristics", so that analyzing Islamic economics in terms of Fiqh" risks losing "the ability to provide a macroeconomic theory".^[55]

According to economist Muhammad Akram Khan the "main plank" of Islamic economics is the "theory of riba", while "another landmark" is zakat, a tax on wealth and income.^[56] According to another contemporary writer Salah El-Sheikh, "Islamic economic principles" (what he calls a "FiqhiConomic model") utilize the Faqīh (Islamic jurisprudence) as supporting material but are grounded upon the ethical teachings within the Qu'rān. Sharīah's basic tenets involve gharar and (fadl māl bilā 'iwad). Gharar insists all knowledge about a trade or transaction is known before two individuals complete a transaction and (fadl māl bilā 'iwad) warns against unjustified enrichment through trade and business. These tenets were "among the first economic regulations" and their philosophy can be seen today in modern Capitalism. Within Sharīah, El-Sheikh states, Gharar functions as a divine deterrent against asymmetric information and allows trade to prosper. Riba, ensures each transaction is conducted at a fair price, not allowing one party to benefit exceedingly, which shares a parallel philosophy with Karl Marx "Das Kapital": seeking a greater outcome for the community.^[57]

History

Further information: History of Islamic economics

Pre-modern Muslim thought on economics[edit]

Classical scholars in the Muslim world did, however, make valuable contributions to Islamic thought on issues involving production, consumption, income, wealth, property, taxation, land ownership, etc. are Abu Yusuf (d. 798), Muhammad bin al-Hasan (d. 805), Al-Mawardi (d. 1058), Ibn Hazm (d. 1064), Al-Sarakhsi (d. 1090), Al-Tusi (d. 1093), Al-Ghazali (d. 1111), Al-Dimashqi (d. after 1175), Ibn Rushd (d. 1187), Ibn Taymiyyah (d.1328), Ibn al-Ukhuwwah (d. 1329), Ibn al-Qayyim (d. 1350), Sayyid Ali Hamadani (d. 1384), Al-Shatibi(d. 1388), Ibn Khaldun (d. 1406), Al-Maqrizi (d. 1442), Al-Dawwani (d. 1501), and Shah Waliyullah (d. 1762).^[58]

Abu Yusuf (d. 798) was author of the book al Kharaj—literally "the return or revenue" but was used by the author to mean "public revenues and taxation"—which was a policy guide to Harun al-Rashid, the fifth Abbasid Caliph.^[59] Muhammad bin al-Hasan (d.805) wroteal Iktisab fi al Rizq al Mustatab [Earned Desired income], intended as advice to businessmen "in their endeavors to create income opportunities".^[59] Abu 'Ubaid al Qasim bin Sallam (d.839) was the author of al-Amwal (plural of "wealth").^[59]

Perhaps the most well-known Islamic scholar who wrote about economics issues was Ibn Khaldun,^{[60][Note 2]} who has been call "the father of modern economics" by I.M. Oweiss.^[62][63] Ibn Khaldun wrote on what is now called economic and political theory in the introduction, or Muqaddimah (Prolegomena), of his History of the World (Kitab al-Ibar). He discussed what he called asabiyya (social cohesion), which he cited as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic, although there could be sudden sharp turns that break the pattern.^[64]

His idea about the benefits of the division of labor also relate to asabiyya, the greater the social cohesion, the more complex the successful division may be, the greater the economic growth. He noted that growth and development positively stimulate both supply and demand and that the forces of supply and demand are what determines the prices of goods.^[65] He also noted macroeconomic forces of population growth, human capital development, and technological developments effects on development.^[66] In fact, Ibn Khaldun thought that population growth was directly a function of wealth.^[67]

Medieval Islamic economics appears to have somewhat resembled a form of capitalism, some arguing that it laid the foundations for the development of modern capitalism.^[68][69]

Development of "Islamic economics"[edit]

According to Timur Kuran, "not until the mid-twentieth century" was there any body of thought that could be called "Islamic economics", that was "recognizable as a coherent or self-contained doctrine". But around 1950 "campaigns launched to identify self-consciously, if not also exclusively, Islamic patterns of economic thought and behavior".^[5] The famous early-20th Century Muslim nationalist and author Muhammad Iqbal, for example, did not refer to religion in his treatise on economics.^[52]

Islamic economics grew naturally from the Islamic revival and political Islam whose adherents considered Islam to be a complete system of life in all its aspects, rather than a spiritual formula^[70] and believed that it logically followed that Islam must have an economic system, unique from and superior to non-Islamic economic systems.^{[Note 3]} "Islamic economics" "emerged" in the 1940s according to the Encyclopedia of Islam and the Muslim World.^[72] Maulana ala Maududi's 1941 address "The economic problem of man and its Islamic solution" (Insaan ka Maashi Maslah aur aus ka Islami Hul) is "generally considered to be one of the founding documents of modern Islamic economics"^[73][74][75]

More conservative Salafi have shown less interest in socioeconomic issues, asking the question, "the prophet and his companions didn't study `laws` of economics, look for patterns, strive for understanding of what happens in commerce, production, consumption. Why should we?"^[44] Maududi himself also dismissed the need for a "new science of economics, embodied in voluminous books, with high-sounding terminology and large organisation", as the true "economic problem of man" — along with all his social, political and other problems — "can be easily understood" and is simply the failure to follow Islamic law.^[76][77]

1960, 70s

In the 1960s and 1970s, Shi'a thinkers worked to describe Islamic economics' "own answers to contemporary economic problems." Several works were particularly influential:

• Eslam va Malekiyyat (Islam and Property) by Mahmud Taleqani (1951),
• Iqtisaduna (Our Economics) by Mohammad Baqir al-Sadr (1961) and
• Eqtesad-e Towhidi (The Economics of Divine Harmony) by Abolhassan Banisadr (1978)
• Some Interpretations of Property Rights, Capital and Labor from Islamic Perspective by Habibullah Peyman (1979).^[78][79]

Al-Sadr in particular was described as having "almost single-handedly developed the notion of Islamic economics"^[80]

In their writings, Sadr and the other authors "sought to depict Islam as a religion committed to social justice, the equitable distribution of wealth, and the cause of the deprived classes," with doctrines "acceptable to Islamic jurists," while refuting existing non-Islamic theories of capitalism and Marxism. Mohammad Baqir al-Sadr and also cleric Mahmoud Taleghani developed an "Islamic economics" emphasizing a major role for the state in matters such as circulation and equitable distribution of wealth, and a reward to participants in the marketplace for being exposed to risk or liability. This version of Islamic economics, which influenced the Iranian Revolution, called for public ownership of land and of large "industrial enterprises," while private economic activity continued "within reasonable limits."^[81] These ideas informed the large public sector and public subsidy policies of the Iranian Revolution.

Sunni cleric Taqiuddin al-Nabhani proposed economic system (Nidham ul-Iqtisad fil Islam (The Economic System of Islam) by Taqiuddin Nabhani (1953)) combined public ownership of large chunks of the economy (utilities, public transport, health care, energy resources such as oil, and unused farm land), with use of the gold standard and specific instructions for the gold and silver weights of coins, arguing this would "demolish ... American control and the control of the dollar as an international currency."^[82]

In the Sunni world the first international conference on Islamic economics was held at the King Abdulaziz University in Jeddah in 1976. Since then the International Association for Islamic Economics in collaboration with the Islamic Development Bank has held conferences in Islamabad (1983), Kuala Lumpur (1992), Loughborough (2000), Bahrain (2003), Jakarta (2005) and Jeddah (2008), Iqbal (2008).^[83] In addition there have been hundreds of seminars, workshops and discussion groups around the world on Islamic economics and finance.^[84] In the U.S. a small number of patent applications have been filed for Sharia compliant financial service methods.^[85]

Khomeini era

What has been called one of "two versions" of "Islamic economy" existed during the first ten years (1979-1989) of the Islamic Republic of Iran during the life of Supreme Leader (and revolution founder) Ayatollah Ruhollah Khomeini. This was an "Islamist socialist, and state-run": It was "little by little supplanted" by a more liberal economic policy.^[86]

Post-socialist trend

In the 1980s and 1990s, as the Islamic revolution failed to reach the per capita income level achieved by the regime it overthrew, and Communist states and socialist parties in the non-Muslim world turned away from socialism, Muslim interest shifted away from government ownership and regulation. In Iran, "eqtesad-e Eslami (meaning both Islamic economics and economy) ... once a revolutionary shibboleth, is indubitably absent in all official documents and the media. It disappeared from Iranian political discourse" about 1990.^[79]During the era of Zia-ul-Haq, several Islamic economic concepts and practices were introduced into the domestic economy, as part of Zia's Islamisation reforms (see Islamic economics in Pakistan).

The term lived on in the Muslim world, shifting form to the less ambitious goal of interest-free banking. Some Muslim bankers and religious leaders suggested ways to integrate Islamic law on usage of money with modern concepts of ethical investing. In banking this was done through the use of sales transactions (focusing on the fixed rate return modes) to support investing without interest-bearing debt. Many modern writers have strongly criticized this approach as a means of covering conventional banking with an Islamic facade.^[87] (Sohrab Behada has argued that the economic system proposed by Islam is essentially a capitalist one.^[88])

As an Academic Discipline

Achievements[edit]

As of 2008 there were:

• Eight magazines recently started "exclusively devoted to Islamic economics and finance",^[89]
• 484 research projects in various universities of ten countries including the US, the UK and Germany.^[90]
• 200 Ph.D. dissertations completed at different universities of the world,^[90] literature published English, Arabic, Urdu, Bahasa Malaysia, Turkish and other regional languages.^[91]
• "Over a thousand unique titles on Islamic economics and finance" in IFP databank^[90]
• 1500 conferences (whose proceedings are available in IFP databank)^[91][92]
• One school—the Kulliyyah of Economics and Management Sciences of International Islamic University Malaysia (IIUM) -- has produced over 2000 graduates in 25 years as of 2009.^[93][94]

King Abdulaziz University, Jeddah hosted the first international conference on Islamic economics in 1976. Thereafter the International Association for Islamic Economics in collaboration with the Islamic Development Bank has held conferences in Islamabad (1983), Kuala Lumpur (1992), Loughborough (2000), Bahrain (2003), Jakarta (2005) and Jeddah (2008) Iqbal 2008).^[84]

Challenges

Along with these achievements, some Islamic economists have complained of problems in the academic discipline: a shift in interest away from Islamic Economics to Islamic Finance since the 1980s, a shortage of university courses, reading materials that are "either scant or of poor quality",^[95] lack of intellectual freedom,^[96] "narrow focus" on interest-free banking and zakat without data-based research to substantiate claim made for them—that interest causes economic problems or that zakat solves them.^[97]

A number of economists have lamented that while Islamic Finance was originally a "subset" of Islamic Economics, economics and research in pure Islamic economics has been "shifted to the back burner".^[98] Funding for research has gone to Islamic Finance^[99] despite the lack of "scientific knowledge to back" the claims made for Islamic Finance.^[100] Enrollment has subsided in classes^[101] and second and third generation Islamic economists are scarce,^[99] some institutions have "lost their real direction and some have even been closed".^[102] and interest of economists in the field's "grand idea" of providing an alternative to capitalism and socialism has "yielded" to the "needs" of the "industry" of Islamic Finance.^[101] [103]

According to economist Rasem Kayed, while a number of universities and institutes of higher learning now offer courses on Islamic economics and finance "most of the courses offered by these institutions pertain to Islamic finance rather than Islamic economics."^[104]Surveying Islamic economics and finance courses being offered as of 2008 by 14 universities in Muslim countries, Kayed found 551 courses in conventional economics and finance, and only 12 courses in Islamic economics and finance (only 2% of the total).^[104] This "appalling and intolerable ... negligence" was made worse by the curriculum of the courses which failed to debate "the issues" the discipline or give "due thought to ... the future development of Islamic financial industry" but rather attempted "to squeeze as much abstract information" as possible in their courses, according to Kayed.^[98][105]

Another economist (Muhammad Akram Khan) lamented that "the real problem is that despite efforts for developing a separate discipline of Islamic economics, there is not much that can be genuinely called `economics`. Most of Islamic economics consists of theology on economic matters."^[94] Another (M.N. Siddiqi) notes Islamic economics has been teaching "conventional economics from an Islamic perspective", rather than Islamic economics.^[106][107]

Despite its start in 1976, as of 2009, 2013 Islamic economics was called still in its infancy,^[93][94] its "curricula frames, course structures, reading materials, and research", "mostly" anchored in the "mainstream tradition",^[94][106] "lacking sufficiency, depth, coordination and direction," with teaching faculties in many cases ... found short of the needed knowledge, scholarship, and commitment."^[108][109] "Distinct textbooks and teaching materials" required have been found to "neither exist" nor be "easy to create."^[95] Despite shortcomings in academic writing—most of the books are "not cohesive" and are "at best no more than extended papers on specific topics"—constructive evaluations are not common and response to what there is even less common.^[110] The lack of an Islamic economics textbook "looms large" for Muslim economists and scholars. Despite the holding of a workshop in November 2010 to arrange the writing of such a textbook, the participation of "a number of eminent Muslim economists", (at the International Institute of Islamic Thought in London) and the appointment of "a noted Muslim economist" to coordinate the production of the textbook, as of 2015 "no standard textbook of Islamic economics was available."^[111]

Islamic economic institutes are not known for their intellectual freedom, and according to Muhammad Akram Khan are unlikely to allow criticism of the ideas or policies of their founding leaders or governments. The Centre for Research in Islamic Economics, an organ of the Jeddah University in Saudi Arabia, for example, "cannot allow publication of any work that goes against the orthodox thinking of the influential" Saudi religious leadership.^[96] Despite "tall talk about ijtehad", Islamic economists "are shy" about "suggesting innovative ideas" for fear of antagonizing religious clerics.^[96]

Use of Islamic terminology not only for distinctive Islamic concepts such as riba, zakat, mudaraba but also for concepts that do not have specific Islamic connotation -- adl for justice, hukuma for government—locking out non-Muslim and even not Arabic speaking readers from the content of Islamic economics and even "giving legitimacy" to "pendantry" in the field.^[112]

( Source: https://en.wikipedia.org/wiki/Islamic_economics )