Islamic economics
Islamic economics refers to the knowledge of economics or economic activities and processes in terms of Islamic principles and teachings. Islam has a set of specific moral norms and values about individual and social economic behavior. Therefore, it has its own economic system, which is based on its philosophical views and is compatible with the Islamic organization of other aspects of human behavior: social and political systems.
Over the years, the term Islamic economics has been applied to various theories, but several recurring principles often emerge. These include backing currency with a gold standard, implementing a land value tax, using profit-and-loss-sharing financing, promoting a social-democratic economy, nationalizing natural resources—including water, energy, and grazing lands—and placing state banks and money issuance under public control.
Islamic economics is a broad field, related to the more specific subset of Islamic commercial jurisprudence. It is also an ideology of economics similar to the labour theory of value, which is "labour-based exchange and exchange-based labour". While there are differences between the two, Islamic economics still tends to be closer to labor theory rather than subjective theory.
Islamic commercial jurisprudence entails the rules of transacting finance or other economic activity in a Shari'a compliant manner, i.e., a manner conforming to Islamic scripture.
Islamic jurisprudence has traditionally dealt with determining what is required, prohibited, encouraged, discouraged, or just permissible. according to the revealed word of God and the religious practices established by Muhammad. This applied to issues like property, money, employment, taxes, loans, along with everything else. The social science of economics, on the other hand, works to describe, analyse and understand production, distribution, and consumption of goods and services, and, studied how to best achieve policy goals, such as full employment, price stability, economic equity and productivity growth.
Early forms of capitalism are thought to have been developed in the Islamic Golden Age, starting from the 9th century, and later became dominant in European Muslim territories like Al-Andalus and the Emirate of Sicily. The Islamic economic concepts taken and applied by the gunpowder empires and various Islamic kingdoms and sultanates led to systemic changes in their economy, particularly in the Mughal Empire. Its wealthiest region of Bengal, a major trading nation of the medieval world, signaled the period of proto-industrialization, making direct contribution to the world's first Industrial Revolution after the British conquests.
In the mid-20th century, campaigns began promoting the idea of specifically Islamic patterns of economic thought and behavior. 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. The central features of an Islamic economy are often summarized as the "behavioral norms and moral foundations" derived from the Quran and Sunnah; collection of zakat and other Islamic taxes; and prohibition of interest charged on loans.
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. Among the assertions 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, by such means as the discouraging of the hoarding of wealth, taxing wealth but not trade, exposing lenders to risk through profit sharing and venture capital, discouraging of hoarding of food for speculation, and other activities that Islam regards as sinful such as unlawful confiscation of land. Complementing Islamic economics, Islamic entrepreneurship has gained traction, focusing on Muslim entrepreneurs, ventures, and contextual factors at the intersection of Islamic faith and entrepreneurship.
Definitions and descriptions
According to Hasan Raza, after more than six decades of its formal/ informal existence, a consensus on the definition of Islamic economics has not yet emerged. Some definitions that have been offered include:- "that branch of knowledge which helps to realize human well-being through an 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."
- "the study of an... economy which abides by the rules of the Shariah", i.e. an Islamic economy.
- 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. And which seeks to achieve a "transformation of human beings from followers of base desires to people concerned with achieving higher goals".
- "a discipline that is guided by the Shariah and studies all human societies"
- "restatements of Islamic economic teachings", using "modern economic jargon".
- 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".
- *an "ideological construct" developed by 20th century Islamists taking basic prescriptions from sharia, 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."
- Zaman argues that confusion regarding appropriate definition of Islamic economics has arisen 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, in our communities, and at the level of Ummah."
Fiqh and Islamic economics
- 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 "
- Qimar and
- the encouragement of Taa’won,
- "the overriding doctrine of fairness in commercial dealings is established."
In addition to Quran and ahadith, sometimes other sources such as al-urf, or al-ijma are employed, to create laws that determine whether actions were forbidden, discouraged, allowed, encouraged and obligatory for Muslims. The different school of fiqh 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`. Some brief works might contain almost nothing related to matters of property, sales, finance 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
Other works divided the subjects of fiqh into four "quarters": typically worship, marriage and family law, criminal law, commercial transaction law. At least one author writes that Mu'amalat is "closely related" to Islamic Economics. , or calculation of alms ).
A number of scholars have noted the recentness of reflecting on economic issues in the Islamic world, 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...
M. Kahf writes that mu'amalat and Islamic economics "often intermingle", 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, 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 macro economic theory".
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. According to another contemporary writer Salah El-Sheikh, "Islamic economic principles" utilize the Faqīh as supporting material, but are grounded upon the ethical teachings within the Qu'rān. Sharīah's basic tenets involve gharar and. Gharar insists all knowledge about a trade or transaction is known before two individuals complete a transaction and 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.