Wednesday, May 23, 2007

The "Islamic" Economic System: Common Confusions

Along the lines that what is called interest in modern economics is synonymous to what is called riba in the Qur'an. And that the Islamic system of economics is an interest-free system that avoids riba in financial dealings on all levels, and thus guarantees prosperity and growth because it avoids sin and injustice, and so on.

The very fact of "comprehensive" picture of "the Islamic theory of economy" reveals, with all due respect, a common confusion between what is divine and what is human, between what should be according to the scripture and what should be left to our human free thinking, and between what is constant and what is variable in the Islamic way of life.

Although Islam is a comprehensive way of life, it is NOT meant to define and precisely prescribe each and every detail of this life. Thus, Islam has rulings and guidelines that are concerned with politics, courts, family, health, the economy, and so on.

However, talking about "Islamic" politics, for example, does not mean that Islam has a cut-and-dry (let alone "divine") detailed system of governance (such as a monarchy with a consultation council, a democratic republic in a multi-party style, a federal government with a constitution, a simple direct democracy, or any other specific system of governance). Nor does "Islamic politics" mean that you must or must not have a constitution, you must or must not have a supreme court, or you must wage war or call for peace with certain countries or groups.
The Islamic system of politics is a system of values, and the exact details are simply left to us humans to decide. Examples of these Islamic political values, as mentioned in the Qur'an, are justice, consultation, and unity.

Consultation (Arabic shura) could take a public and direct form (as the Prophet [peace be upon him] did in various occasions), or could take a form in which only a specific group of people are consulted (as the Prophet also did on various occasions).

This specific group could be chosen according to a leader's personal choice in a certain environment, according to elections in a parliamentary system or a council-based system, or even according to the tribal structure in a certain society.

None of the above ways is morally wrong and all of the above ways are valid as long as the values of justice, unity, consultation, etc., are observed and aimed at. Any system, from the above list or otherwise, that violates these values is not an Islamic system, whether you call it democracy, caliphate, kingdom, or sultanate.

Similarly, Islam is a way of life that is concerned with health. The values that form the "Islamic" guidance in this area, according to the Qur'an and Sunnah, are cleanliness, seeking medication, moderation in consumption, high morale, and so on.

However, it is not part of the Islamic teaching to prescribe a certain technical method of cleaning one's home or environment, for example.

Likewise, it is not part of the mission of Muhammad to teach us certain medication or medical procedures (even though it was indeed part of his mission to teach us certain related prayers, or ruqiyah, and to teach us how moral behavior is good for health, etc.).

I find the hadith of pollinating the palm trees to be of specific significance in this regard.
Talha narrates: I was walking with the Prophet when he passed by some people at the tops of their palm trees. He asked: "What are they doing?" They answered: "Pollinating the male into the female." He replied: "I do not think that this will be of benefit."When they were told about what the Prophet said, they stopped what they were doing. Later, when the trees shed down their fruits prematurely, the Prophet was told about that. He said: "If it is good for them they should do it. I was just speculating. So pardon me. But if I tell you something about God, then take it because I would never lie about God." Another narrator said that the Prophet added, "You know your worldly affairs better than I." (Muslim)

This hadith shows a matter that the Prophet is instructing us to deal with according to human experience rather than revelation. Thus, human empirical experience is meant to be the final judging factor for these kinds of tools and means.

Similarly, Islam is a way of life that is concerned with the economy (in its micro- and macro-levels, as we say in today's language). However, Islam is not meant to devise specific systems for economy in the sense of a certain system for fiscal policies, risk, banking, and so on.
I am not an expert in economics, even though I do have a general knowledge of the subject. I know, however, that there are many economic theories and proposed systems. The best theory, which you could also call "Islamic," is the theory that achieves the most in terms of Islamic economic values and principles.

For example, according to the Qur'an and Sunnah, the value of justice is a principle and basic value. To achieve justice, a group of other values have to be guaranteed. For example, the Qur'an mentions that God requires that *{the wealthy amongst you do not dominate wealth}* as mentioned in Surat Al-Hashr (59:6).

Now, the question of how we can design a certain system of the distribution of wealth in a certain economy is a matter of human legislation rather than divinely revealed legislation.
Thus, enforcing certain taxes that aim to diminish the gap between the rich and the poor, giving the needy certain subsidies or benefits, passing laws against monopoly, and so on, are all valid means to achieve these goals. None of them, however, could claim divine origin because they could all be changeable and subject to evolution, enhancement, and development.

The prohibition of usury (Arabic riba) is also an Islamic value that is clearly mentioned in the Qur'an. Usury is clear: someone borrows money from an individual or a bank and returns the money in addition to a fixed percentage or amount after a certain period of time.

However, 'interest rate' as we know it in today's modern economies cannot be accurately equated with usury or riba. Sometimes interest is related to borrowing and sometimes related to mere investment. This investment is sometimes done in lawful goods (land, gold, etc) and sometimes done in prohibited goods (liquor, etc).

Interest rates may be fixed or unfixed, but in the case of riba, it is supposed to be fixed. Yet, an interest that you get on your credit is not defined only based on the profit that this credit brings, but it is rather tied to a large number of economic and even political factors.

Thus, I think that the area of Islam and economy is an area that requires a lot of research that addresses current economic theories and realities, rather than addressing the economic theories and realities of past eras!

Having said that, I would also point to a growing number of literature in the area of Islam and economy, in which various writers and researchers present their own views of how an economic system could meet the moral requirements of Islam.

All these writings are useful and much needed. However, none of them should claim the status of "the" Islamic theory of economy. Nevertheless, each of these attempts is "an" Islamic theory of economy that could change — in fact should change — with the change of time and the development of human life on earth.

1 comment:

aenn said...

The economic system of Islam is sufficient to explain the fear and anxiety that America and the West have shown towards Islam, and explains the dedication and effort exerted on reducing or eliminating the resurgence of Islam as a System.The efficiency, that Islamic economic systems correctly defines the economic problem and ensure the needs of each individual, and removes all forms of economic corruption and social development.
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